10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

Or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from_____________________ to ___________________

Commission file number 0-13222

CITIZENS FINANCIAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

PENNSYLVANIA	23-2265045
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

15 South Main Street

Mansfield, Pennsylvania 16933

(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: (570) 662‑2121

N/A

(Former Name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Trading Symbol(s) Name of Each Exchange on Which Registered

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer     ☐	Accelerated filer     ☒
Non-accelerated filer     ☐	Smaller reporting company     ☒
Emerging growth company     ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No  ☒

The number of outstanding shares of the Registrant’s Common Stock, as of October 31, 2020, was 3,921,880.

Citizens Financial Services, Inc.

Form 10-Q

INDEX

		PAGE
Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited):
	Consolidated Balance Sheet as of September 30, 2020 and December 31, 2019	1
	Consolidated Statement of Income for the Three and Nine months Ended September 30, 2020 and 2019	2
	Consolidated Statement of Comprehensive Income for the Three and Nine months ended September 30, 2020 and 2019	3
	Consolidated Statement of Changes in Stockholders’ Equity for the Three and Nine months ended September 30, 2020 and 2019	4
	Consolidated Statement of Cash Flows for the Nine months ended September 30, 2020 and 2019	5
	Notes to Consolidated Financial Statements	6-37
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38-61
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	62
Item 4.	Controls and Procedures	62
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	62
Item 1A.	Risk Factors	62-64
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 3.	Defaults Upon Senior Securities	65
Item 4.	Mine Safety Disclosures	65
Item 5.	Other Information	65
Item 6.	Exhibits	66
	Signatures	67

CITIZENS FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

(in thousands except share data)	September 30, 2020			December 31, 2019
ASSETS:
Cash and due from banks:
Noninterest-bearing	$	15,922		$	17,727
Interest-bearing		59,387			793
Total cash and cash equivalents		75,309			18,520
Interest bearing time deposits with other banks		13,758			14,256
Equity securities		1,696			701
Available-for-sale securities		287,838			240,706
Loans held for sale		19,320			815
Loans (net of allowance for loan losses:
2020, $15,169 and 2019, $13,845)		1,350,710			1,101,724
Premises and equipment		17,720			15,933
Accrued interest receivable		6,164			4,555
Goodwill		31,376			23,296
Bank owned life insurance		32,408			28,128
Other intangibles		1,538			1,346
Other assets		20,507			16,359
TOTAL ASSETS	$	1,858,344		$	1,466,339
LIABILITIES:
Deposits:
Noninterest-bearing	$	276,286		$	203,793
Interest-bearing		1,276,467			1,007,325
Total deposits		1,552,753			1,211,118
Borrowed funds		99,602			85,117
Accrued interest payable		1,006			1,088
Other liabilities		15,932			14,242
TOTAL LIABILITIES		1,669,293			1,311,565
STOCKHOLDERS’ EQUITY:
Preferred Stock $1.00 par value; authorized 3,000,000 shares at September 30, 2020 and December 31, 2019; none issued in 2020 or 2019		-			-
Common stock $1.00 par value; authorized 25,000,000 shares at September 30, 2020 and December 31, 2019; issued 4,350,342 at September 30, 2020 and 3,938,668 at December 31, 2019		4,350			3,939
Additional paid-in capital		75,867			55,089
Retained earnings		121,203			110,800
Accumulated other comprehensive income (loss)		2,865			(629	)
Treasury stock, at cost: 428,934 shares at September 30, 2020 and 413,607 shares at December 31, 2019		(15,234	)		(14,425	)
TOTAL STOCKHOLDERS’ EQUITY		189,051			154,774
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,858,344		$	1,466,339

The accompanying notes are an integral part of these unaudited consolidated financial statements.

1

CITIZENS FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENT OF INCOME

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except share and per share data)	2020			2019			2020			2019
INTEREST INCOME:
Interest and fees on loans	$	16,718		$	13,915		$	46,763		$	41,005
Interest-bearing deposits with banks		106			103			298			311
Investment securities:
Taxable		979			1,361			3,212			3,597
Nontaxable		485			378			1,337			1,109
Dividends		98			117			275			371
TOTAL INTEREST INCOME		18,386			15,874			51,885			46,393
INTEREST EXPENSE:
Deposits		1,635			2,315			5,279			7,027
Borrowed funds		281			660			960			2,216
TOTAL INTEREST EXPENSE		1,916			2,975			6,239			9,243
NET INTEREST INCOME		16,470			12,899			45,646			37,150
Provision for loan losses		550			400			1,500			1,150
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		15,920			12,499			44,146			36,000
NON-INTEREST INCOME:
Service charges		1,112			1,225			3,107			3,498
Trust		199			148			542			589
Brokerage and insurance		352			289			941			843
Gains on loans sold		855			176			1,282			339
Equity security (losses) gains, net		(33	)		29			(276	)		70
Available for sale security gains, net		185			8			302			8
Earnings on bank owned life insurance		180			158			514			463
Other		688			144			1,046			427
TOTAL NON-INTEREST INCOME		3,538			2,177			7,458			6,237
NON-INTEREST EXPENSES:
Salaries and employee benefits		6,102			5,096			17,411			15,129
Occupancy		714			530			1,891			1,639
Furniture and equipment		267			165			587			501
Professional fees		417			343			1,180			1,101
FDIC insurance		135			(20	)		341			196
Pennsylvania shares tax		275			275			809			825
Amortization of intangibles		57			66			162			198
Merger and acquisition		-			275			2,179			275
Software expenses		324			244			817			699
ORE expenses		30			92			221			308
Other		1,371			1,348			4,428			4,102
TOTAL NON-INTEREST EXPENSES		9,692			8,414			30,026			24,973
Income before provision for income taxes		9,766			6,262			21,578			17,264
Provision for income taxes		1,759			1,066			3,702			2,817
NET INCOME	$	8,007		$	5,196		$	17,876		$	14,447
PER COMMON SHARE DATA:
Net Income - Basic	$	2.04		$	1.46		$	4.74		$	4.06
Net Income - Diluted	$	2.04		$	1.46		$	4.74		$	4.05
Cash Dividends Paid	$	0.460		$	0.445		$	1.460		$	1.317
Number of shares used in computation - basic		3,918,438			3,553,996			3,769,705			3,560,695
Number of shares used in computation - diluted		3,918,438			3,553,996			3,771,730			3,562,975

The accompanying notes are an integral part of these unaudited consolidated financial statements.

2

CITIZENS FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended, September 30,
(in thousands)	2020			2019			2020			2019
Net income	$	8,007		$	5,196		$	17,876		$	14,447
Other comprehensive income (loss):
Change in unrealized gains (losses) on available for sale securities		(44	)		9			4,690			4,425
Income tax effect		9			(2	)		(985	)		(930	)
Change in unrecognized pension cost		59			60			482			181
Income tax effect		(12	)		(13	)		(101	)		(38	)
Change in unrealized loss on interest rate swaps		118			-			(448	)		-
Income tax effect		(25	)		-			95			-
Less: Reclassification adjustment for investment security gains included in net income		(185	)		(8	)		(302	)		(8	)
Income tax effect		38			2			63			2
Other comprehensive income (loss), net of tax		(42	)		48			3,494			3,632
Comprehensive income	$	7,965		$	5,244		$	21,370		$	18,079

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

CITIZENS FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

	Common Stock				Additional						Accumulated Other
(in thousands, except share data)	Shares		Amount		Paid-in Capital			Retained Earnings			Comprehensive Income (Loss)			Treasury Stock			Total
Balance, June 30, 2020		4,350,342	$	4,350	$	75,863		$	115,000		$	2,907		$	(15,025	)	$	183,095
Comprehensive income:
Net income									8,007									8,007
Net other comprehensive income (loss)												(42	)					(42	)
Purchase of treasury stock (12,483 shares)															(618	)		(618	)
Restricted stock, executive, Board of Director awards and ESOP (3,018 shares)						(3	)								153			150
Cash dividend reinvestment paid from treasury stock (5,128 shares)						7									256			263
Cash dividends, $0.460 per share									(1,804	)								(1,804	)
Balance, September 30, 2020		4,350,342	$	4,350	$	75,867		$	121,203		$	2,865		$	(15,234	)	$	189,051
Balance, December 31, 2019		3,938,668	$	3,939	$	55,089		$	110,800		$	(629	)	$	(14,425	)	$	154,774
Comprehensive income:
Net income									17,876									17,876
Net other comprehensive income (loss)												3,494						3,494
Stock dividend		38,318		38		1,878			(1,916	)								-
Issuance of Common stock		373,356		373		18,854												19,227
Purchase of treasury stock (40,400 shares)															(2,120	)		(2,120	)
Restricted stock, executive, Board of Director awards and ESOP (9,669 shares)						(236	)								491			255
Restricted stock vesting						281												281
Cash dividend reinvestment paid from treasury stock (15,404 shares)						1			-						820			821
Cash dividends, $1.460 per share									(5,557	)								(5,557	)
Balance, September 30, 2020		4,350,342	$	4,350	$	75,867		$	121,203		$	2,865		$	(15,234	)	$	189,051
Balance, June 30, 2019		3,938,668		3,939		55,096			103,733			(337	)		(14,410	)		148,021
Comprehensive income:
Net income									5,196									5,196
Net other comprehensive income (loss)												48						48
Cash dividends, $0.445 per share									(1,587	)								(1,587	)
Balance, September 30, 2019		3,938,668	$	3,939	$	55,096		$	107,342		$	(289	)	$	(14,410	)	$	151,678
Balance, December 31, 2018		3,904,212		3,904		53,099			99,727			(3,921	)		(13,580	)		139,229
Comprehensive income:
Net income									14,447									14,447
Net other comprehensive income (loss)												3,632						3,632
Stock dividend		34,456		35		2,067			(2,102	)								-
Purchase of treasury stock (20,620 shares)															(1,236	)		(1,236	)
Restricted stock, executive and Board of Director awards						(300	)								415			115
Restricted stock vesting						221												221
Forfeited restricted stock						9									(9	)		-
Cash dividends, $1.317 per share									(4,730	)								(4,730	)
Balance, September 30, 2019		3,938,668	$	3,939	$	55,096		$	107,342		$	(289	)	$	(14,410	)	$	151,678

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

CITIZENS FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended September 30,
(in thousands)	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	17,876		$	14,447
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Provision for loan losses		1,500			1,150
Depreciation and amortization		(1,648	)		357
Amortization and accretion of investment securities		648			129
Deferred income taxes		359			420
Investment securities losses (gains), net		(26	)		(78	)
Earnings on bank owned life insurance		(514	)		(463	)
Vesting of restricted stock		281			221
Originations of loans held for sale		(62,677	)		(15,261	)
Proceeds from sales of loans held for sale		45,113			15,183
Realized gains on loans sold		(1,282	)		(339	)
Increase in accrued interest receivable		(1,023	)		(24	)
Increase (decrease) in accrued interest payable		(246	)		(24	)
Other, net		(729	)		103
Net cash (used in) provided by operating activities		(2,368	)		15,821
CASH FLOWS FROM INVESTING ACTIVITIES:
Available-for-sale securities:
Proceeds from sales		18,621			5,508
Proceeds from maturity and principal repayments		55,455			51,028
Purchase of securities		(117,166	)		(59,788	)
Purchase of equity securities		(1,439	)		(64	)
Proceeds from sale of equity securities		168			-
Purchase of interest bearing time deposits with other banks		(350	)		(248	)
Proceeds from matured interest bearing time deposits with other banks		848			1,490
Proceeds from redemption of regulatory stock		7,923			7,784
Purchase of regulatory stock		(6,424	)		(9,127	)
Net increase in loans		(24,741	)		(36,653	)
Purchase of premises and equipment		(760	)		(225	)
Proceeds from sale of premises and equipment		-			7
Proceeds from sale of foreclosed assets held for sale		669			813
Acquisition, net of cash paid		1,023			-
Net cash used in investing activities		(66,173	)		(39,475	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits		132,807			14,148
Proceeds from long-term borrowings		20,000			10,000
Repayments of long-term borrowings		(3,000	)		(3,123	)
Net (decrease) increase in short-term borrowed funds		(17,876	)		11,769
Purchase of treasury stock		(2,120	)		(1,236	)
Reissuance of treasury stock		255			115
Dividends paid		(4,736	)		(4,730	)
Net cash provided by financing activities		125,330			26,943
Net increase in cash and cash equivalents		56,789			3,289
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		18,520			16,797
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	75,309		$	20,086
Supplemental Disclosures of Cash Flow Information:
Interest paid	$	6,321		$	9,267
Income taxes paid	$	3,500		$	2,450
Loans transferred to foreclosed property	$	32		$	3,728
Right of use asset and liability	$	636		$	1,454
Acquisition of				Midcoast Community Bancorp Inc
Non-cash assets acquired
Available-for-sale securities				$	-
Loans					223,235
Premises and equipment					1,787
Accrued interest receivable					586
Bank owned life insurance					3,766
Intangibles					157
Deferred tax asset					3,402
Other assets					2,878
Goodwill					8,080
					243,891
Liabilities assumed
Noninterest-bearing deposits					38,694
Interest-bearing deposits					170,132
Accrued interest payable					164
Borrowed funds					15,497
Other liabilities					1,198
					225,685
Net non-cash assets acquired					18,206
Cash and cash equivalents acquired				$	8,637

The accompanying notes are an integral part of these unaudited consolidated financial statements.

5

CITIZENS FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of Presentation

Citizens Financial Services, Inc. (individually and collectively with its direct and indirect subsidiaries, the “Company”) is a Pennsylvania corporation and the holding company of its wholly owned subsidiary, First Citizens Community Bank (the “Bank”), and of the Bank’s wholly owned subsidiaries, First Citizens Insurance Agency, Inc. (“First Citizens Insurance”) and 1^st Realty of PA LLC (“Realty”). The Bank is the wholly owned subsidiary of CZFS Acquisition Company, LLC, which is a wholly owned subsidiary of the Company. Realty was formed in March of 2019 to manage and sell properties acquired by the Bank in the settlement of a bankruptcy filing with a commercial customer.

The accompanying consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”) and in conformity with U.S. generally accepted accounting principles.  Because this report is based on an interim period, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted.  Certain of the prior year amounts have been reclassified to conform with the current year presentation.  Such reclassifications had no effect on net income or stockholders’ equity.  All material inter‑company balances and transactions have been eliminated in consolidation.

In the opinion of management of the Company, the accompanying interim financial statements at September 30, 2020 and for the periods ended September 30, 2020 and 2019 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations at the dates and for the periods presented. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and of revenues and expenses for the periods covered by the Consolidated Statement of Income. The financial performance reported for the Company for the three and nine month periods ended September 30, 2020 is not necessarily indicative of the results to be expected for the full year.  This information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Note 2 – Revenue Recognition

In accordance with ASC 606, Management determined that the primary sources of revenue emanating from interest and dividend income on loans and investments along with noninterest revenue resulting from investment security gains, loan servicing, gains on loans sold and earnings on bank owned life insurances are not within the scope of ASC 606. The main types of noninterest income within the scope of the standard are as follows:

• Service charges on deposit accounts – The Company has contracts with its deposit customers where fees are charged if certain parameters are not met. These agreements can be cancelled at any time by either the Company or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. The Company also has transaction fees related to specific transactions or activities resulting from a customer request or activity that include overdraft fees, online banking fees, interchange fees, ATM fees and other transaction fees. All of these fees are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time upon the completion of the requested service/transaction.

6

• Trust fees – Typical contracts for trust services are based on a fixed percentage of the assets earned ratably over a defined period and billed on a monthly basis. Fees charged to customers’ accounts are recognized as revenue over the period during which the Company fulfills its performance obligation under the contract (i.e., holding client asset in a managed fiduciary trust account). For these accounts, the performance obligation of the Company is typically satisfied by holding and managing the customer’s assets over time. Other fees related to specific customer requests are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time, upon completion of the requested service/transaction.

• Gains and losses on sale of other real estate owned – Gains and losses are recognized at the completion of the property sale when the buyer obtains control of the real estate and all of the performance obligations of the Company have been satisfied. Evidence of the buyer obtaining control of the asset include transfer of the property title, physical possession of the asset, and the buyer obtaining control of the risks and rewards related to the asset. In situations where the Company agrees to provide financing to facilitate the sale, additional analysis is performed to ensure that the contract for sale identifies the buyer and seller, the asset to be transferred, payment terms, and that the contract has a true commercial substance and that collection of amounts due from the buyer are reasonable. In situations where financing terms are not reflective of current market terms, the transaction price is discounted impacting the gain/loss and the carrying value of the asset.

• Brokerage and insurance – Fees includes commissions from the sales of investments and insurance products recognized on a trade date basis as the performance obligation is satisfied at the point in time in which the trade is processed. Additional fees are based on a percentage of the market value of customer accounts and billed on a monthly or quarterly basis. The Company’s performance obligation under the contracts with certain customers is generally satisfied through the passage of time as the Company monitors and manages the assets in the customer’s portfolio and is not dependent on certain return or performance level of the customer’s portfolio. Fees for these services are billed monthly and are recorded as revenue at the end of the month for which the wealth management service has been performed. Other performance obligations (such as the delivery of account statements to customers) are generally considered immaterial to the overall transaction price.

The following table depicts the disaggregation of revenue derived from contracts with customers to depict the nature, amount, timing, and uncertainty of revenue and cash flows for the three and nine months ended September 30, 2020 and 2019 (in thousands). All revenue in the table below relates to goods and services transferred at a point in time.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Revenue stream	2020		2019		2020		2019
Service charges on deposit accounts
Overdraft fees	$	282		405	$	847	$	1,132
Statement fees		50		52		156		153
Interchange revenue		616		589		1,693		1,724
ATM income		99		108		241		300
Other service charges		65		71		170		189
Total Service Charges		1,112		1,225		3,107		3,498
Trust		199		148		542		589
Brokerage and insurance		352		289		941		843
Other		95		80		261		267
Total	$	1,758	$	1,742	$	4,851	$	5,197

7

Note 3 - Earnings per Share

The following table sets forth the computation of earnings per share.

	Three months ended				Nine months ended
	September 30,				September 30,
	2020		2019		2020		2019
Net income applicable to common stock	$	8,007	$	5,196	$	17,876	$	14,447
Basic earnings per share computation
Weighted average common shares outstanding		3,918,438		3,553,996		3,769,705		3,560,695
Earnings per share - basic	$	2.04	$	1.46	$	4.74	$	4.06
Diluted earnings per share computation
Weighted average common shares outstanding for basic earnings per share		3,918,438		3,553,996		3,769,705		3,560,695
Add: Dilutive effects of restricted stock		-		-		2,025		2,280
Weighted average common shares outstanding for dilutive earnings per share		3,918,438		3,553,996		3,771,730		3,562,975
Earnings per share - diluted	$	2.04	$	1.46	$	4.74	$	4.05

For the three months ended September 30, 2020 and 2019, there were 9,480 and 9,013 shares, respectively, related to the restricted stock plan that were excluded from the diluted earnings per share calculations since they were anti-dilutive. These anti-dilutive shares had per share prices ranging from $51.14-$62.93 for the three month period ended September 30, 2020 and per share prices ranging from $50.65-$62.93 for the three month period ended September 30, 2019. For the nine months ended September 30, 2020 and 2019, 5,347 and 4,453 shares, respectively, related to the restricted stock plan were excluded from the diluted earnings per share calculations since they were anti-dilutive. These anti-dilutive shares had prices ranging from $58.37-$62.93 for the nine month period ended September 30, 2020 and prices ranging from $50.65-$62.93 for the nine month period ended September 30, 2019.

Note 4 – Investments

The amortized cost, gross unrealized gains and losses, and fair value of investment securities at September 30, 2020 and December 31, 2019 were as follows (in thousands):

September 30, 2020	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
U.S. agency securities	$	78,095	$	2,647	$	(44	)	$	80,698
U.S. treasury securities		27,430		737		-			28,167
Obligations of state and political subdivisions		89,678		2,297		(127	)		91,848
Corporate obligations		6,423		84		-			6,507
Mortgage-backed securities in government sponsored entities		78,925		1,829		(136	)		80,618
Total available-for-sale securities	$	280,551	$	7,594	$	(307	)	$	287,838
December 31, 2019
Available-for-sale securities:
U.S. agency securities	$	83,410	$	1,523	$	(70	)	$	84,863
U.S. treasury securities		27,394		267		-			27,661
Obligations of state and political subdivisions		60,667		865		(77	)		61,455
Corporate obligations		3,250		78		-			3,328
Mortgage-backed securities in government sponsored entities		63,086		468		(155	)		63,399
Total available-for-sale securities	$	237,807	$	3,201	$	(302	)	$	240,706

8

The following table shows the Company’s gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time, which individual securities have been in a continuous unrealized loss position, at September 30, 2020 and December 31, 2019 (in thousands). As of September 30, 2020, the Company owned 30 securities whose fair value was less than their cost basis.

September 30, 2020	Less than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. agency securities	$	6,979	$	(44	)	$	-	$	-		$	6,979	$	(44	)
Obligations of state and  political subdivisions		11,257		(127	)		-		-			11,257		(127	)
Mortgage-backed securities in government sponsored entities		8,884		(98	)		5,779		(38	)		14,663		(136	)
Total securities	$	27,120	$	(269	)	$	5,779	$	(38	)	$	32,899	$	(307	)
December 31, 2019
U.S. agency securities	$	14,587	$	(63	)	$	13,094	$	(7	)	$	27,681	$	(70	)
Obligations of states and   political subdivisions		7,508		(75	)		1,507		(2	)		9,015		(77	)
Mortgage-backed securities in government sponsored entities		27,737		(97	)		9,559		(58	)		37,296		(155	)
Total securities	$	49,832	$	(235	)	$	24,160	$	(67	)	$	73,992	$	(302	)

As of September 30, 2020 and December 31, 2019, the Company’s investment securities portfolio contained unrealized losses on agency securities issued or backed by the full faith and credit of the United States government or are generally viewed as having the implied guarantee of the U.S. government, obligations of states and political subdivisions and mortgage backed securities issued by government sponsored entities. For fixed maturity investments management considers whether the present value of cash flows expected to be collected are less than the security’s amortized cost basis (the difference defined as the credit loss), the magnitude and duration of the decline, the reasons underlying the decline and the Company’s intent to sell the security or whether it is more likely than not that the Company would be required to sell the security before its anticipated recovery in fair value, to determine whether the loss in value is other than temporary. Once a decline in value is determined to be other than temporary, if the Company does not intend to sell the security, and it is more likely than not that it will not be required to sell the security before recovery of the security’s amortized cost basis, the charge to earnings is limited to the amount of credit loss. Any remaining difference between fair value and amortized cost (the difference defined as the non-credit portion) is recognized in other comprehensive income, net of applicable taxes. Otherwise, the entire difference between fair value and amortized cost is charged to earnings. The Company has concluded that any impairment of its investment securities portfolio outlined in the above table is not other than temporary and is the result of interest rate changes, sector credit rating changes, or issuer-specific rating changes that are not expected to result in the non-collection of principal and interest during the period.

9

Proceeds from sales of securities available-for-sale for the nine months ended September 30, 2020 and 2019 were $18,621,000 and $5,508,000, respectively. Proceeds from sales of securities available-for-sale for the three months ended September 30, 2020 and 2019 were $13,145,000 and $5,508,000, respectively. The gross gains and losses were as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2020			2019			2020			2019
Gross gains on available for sale securities	$	192		$	9		$	309		$	9
Gross losses on available for sale securities		(7	)		(1	)		(7	)		(1	)
Net gains	$	185		$	8		$	302		$	8

The following table presents the net gains (losses) on the Company’s equity investments recognized in earnings during the three and nine month periods ended September 30, 2020 and 2019, and the portion of unrealized gains for the period that relates to equity investments held at September 30, 2020 and 2019 (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
Equity securities	2020			2019		2020			2019
Net gains (losses) recognized in equity securities during the period	$	(33	)	$	29	$	(276	)	$	70
Less: Net gains realized on the sale of equity securities during the period		68			-		68			-
Net unrealized gains (losses)	$	(101	)	$	29	$	(344	)	$	70

Investment securities with an approximate carrying value of $250.2 million and $209.1 million at September 30, 2020 and December 31, 2019, respectively, were pledged to secure public funds, certain other deposits and borrowing lines.

Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.   The amortized cost and fair value of debt securities (excludes equity securities) at September 30, 2020, by contractual maturity, are shown below (in thousands):

	Amortized Cost		Fair Value
Available-for-sale debt securities:
Due in one year or less	$	19,293	$	19,530
Due after one year through five years		65,451		68,561
Due after five years through ten years		58,962		60,506
Due after ten years		136,845		139,241
Total	$	280,551	$	287,838

Note 5 – Loans

The Company grants loans primarily to customers throughout north central, central and south central Pennsylvania and the southern tier of New York. The recently completed MidCoast acquisition has expanded our lending market into Wilmington and Dover, Delaware.   Although the Company had a diversified loan portfolio at September 30, 2020 and December 31, 2019, a substantial portion of its debtors’ ability to honor their contracts is dependent on the economic conditions within these regions. The following table summarizes the primary segments of the loan portfolio and how those segments are analyzed within the allowance for loan losses as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	208,084	$	1,041	$	20	$	207,023
Commercial		535,456		9,465		3,306		522,685
Agricultural		310,702		4,398		1,722		304,582
Construction		28,656		-		-		28,656
Consumer		30,625		15		-		30,610
Other commercial loans		129,731		1,603		-		128,128
Other agricultural loans		40,790		1,246		306		39,238
State and political subdivision loans		81,835		-		-		81,835
Total		1,365,879		17,768		5,354		1,342,757
Allowance for loan losses		15,169		791		-		14,378
Net loans	$	1,350,710	$	16,977	$	5,354	$	1,328,379

10

December 31, 2019	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	217,088	$	1,166	$	23	$	215,899
Commercial		342,023		11,537		1,210		329,276
Agricultural		311,464		3,782		-		307,682
Construction		15,519		-		-		15,519
Consumer		9,947		4		-		9,943
Other commercial loans		69,970		1,902		49		68,019
Other agricultural loans		55,112		1,281		-		53,831
State and political subdivision loans		94,446		-		-		94,446
Total		1,115,569		19,672		1,282		1,094,615
Allowance for loan losses		13,845		735		-		13,110
Net loans	$	1,101,724	$	18,937	$	1,282	$	1,081,505

During 2020 the Company participated in the Paycheck Protection Program (“PPP”), administered directly by the U.S. SBA. The PPP provides loans to small businesses who were affected by economic conditions as a result of COVID-19 to provide cash-flow assistance to employers who maintain their payroll (including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt during the COVID-19 emergency. As of September 30, 2020, the Company had outstanding principal balances of $53.9 million. The PPP loans are fully guaranteed by the SBA and may be eligible for forgiveness by the SBA to the extent that the proceeds are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan is made as long as certain conditions are met regarding employee retention and compensation levels. PPP loans deemed eligible for forgiveness by the SBA will be repaid by the SBA to the Company. PPP loans are included in the other commercial loan category.

In accordance with the SBA terms and conditions on these PPP loans, the Company received approximately $2.1 million in fees associated with the processing of these loans. Upon funding of the loan, these fees were deferred and will be amortized over the life of the loan as an adjustment to yield in accordance with FASB ASC 310-20-25-2.

The Company evaluated whether loans acquired as part of the MidCoast acquisition were within the scope of ASC 310-30, Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased credit-impaired loans (“PCI”) are loans that have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. There were no material increases or decreases in the expected cash flows of these loans between April 17, 2020 (the “acquisition date”) and September 30, 2020. The fair value of purchased credit-impaired loans, on the acquisition date, was determined, primarily based on the fair value of loan collateral. The carrying value of purchased loans acquired with deteriorated credit quality as a result of the MidCoast acquisition was $4,654,000 at September 30, 2020.

On the acquisition date, the preliminary estimate of the unpaid principal balance for all loans evidencing credit impairment acquired in the MidCoast acquisition was $8,005,000 and the estimated fair value of the loans was $4,869,000. Total contractually required payments on these loans, including interest, at the acquisition date was $8,801,000. However, the Company’s preliminary estimate of expected cash flows was $5,835,000 at the acquisition date. At the acquisition date, the Company established a credit risk related non-accretable discount (a discount representing amounts which are not expected to be collected from the customer nor liquidation of collateral) of $2,966,000 relating to these impaired loans, reflected in the recorded net fair value. Such amount is reflected as a non-accretable fair value adjustment to loans. The Company further estimated the timing and amount of expected cash flows in excess of the estimated fair value and established an accretable discount of $966,000 on the acquisition date relating to these impaired loans.

11

The table below presents the components of the purchase accounting adjustments related to the purchased impaired loans acquired in the MidCoast Acquisition as of April 17, 2020 (in thousands):

	April 17, 2020
Contractually required principal and interest at acquisition	$	8,801
Non-accretable  discount		(2,966	)
Expected cash flows		5,835
Accretable discount	$	(966	)
Estimated fair value	$	4,869

Changes in the accretable yield for PCI loans were as follows for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands):

	Three months ended September 30,						Nine months ended September 30,
	2020			2019			2020			2019
Balance at beginning of period	$	987		$	100		$	89		$	104
Acquisition of Midcoast		-			-			966			-
Accretion		(100	)		(10	)		(168	)		(14	)
Balance at end of period	$	887		$	90		$	887		$	90

The following table presents additional information regarding loans acquired with specific evidence of deterioration in credit quality under ASC 310-30 (in thousands):

	September 30, 2020		December 31, 2019
Outstanding balance	$	9,479	$	4,072
Carrying amount		5,354		1,282

The segments of the Company’s loan portfolio are disaggregated into classes to a level that allows management to monitor risk and performance. Residential real estate mortgages consist primarily of 15 to 30 year first mortgages on residential real estate, while residential real estate home equity loans are consumer purpose installment loans or lines of credit with terms of 15 years or less secured by a mortgage which is often a second lien on residential real estate. Commercial real estate loans are business purpose loans secured by a mortgage on commercial real estate. Agricultural real estate loans are loans secured by a mortgage on real estate used in agriculture production. Construction real estate loans are loans secured by residential, commercial or agricultural real estate used during the construction phase of residential, commercial or agricultural projects. Consumer loans are typically unsecured or primarily secured by assets other than real estate and overdraft lines of credit are typically secured by customer deposit accounts. Other commercial loans are loans for commercial purposes primarily secured by non-real estate collateral. Other agricultural loans are loans for agricultural purposes primarily secured by non-real estate collateral. State and political subdivision loans are loans to state and local municipalities for capital and operating expenses or tax free loans used to finance commercial development.

Management considers other commercial loans, other agricultural loans, state and political subdivision loans, commercial real estate loans and agricultural real estate loans which are 90 days or more past due to be impaired. Management will also consider a loan impaired based on other factors it becomes aware of, including the customer’s results of operations and cash flows or if the loan is modified in a troubled debt restructuring. In addition, certain residential mortgages, home equity and consumer loans that are cross collateralized with commercial relationships that are determined to be impaired may also be classified as impaired. Impaired loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allocation to the allowance for loan losses or a charge-off to the allowance for loan losses.

12

The following table includes the recorded investment and unpaid principal balances for impaired loan receivables by class, excluding PCI loans, with the associated allowance amount, if applicable (in thousands):

September 30, 2020	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
Real estate loans:
Mortgages	$	1,125	$	609	$	296	$	905	$	20
Home Equity		159		77		59		136		9
Commercial		10,053		8,325		1,140		9,465		341
Agricultural		4,614		2,526		1,872		4,398		79
Consumer		15		3		12		15		12
Other commercial loans		2,225		1,243		360		1,603		181
Other agricultural loans		1,368		123		1,123		1,246		149
Total	$	19,559	$	12,906	$	4,862	$	17,768	$	791

December 31, 2019
Real estate loans:
Mortgages	$	1,212	$	794	$	223	$	1,017	$	20
Home Equity		170		83		66		149		12
Commercial		12,070		10,723		814		11,537		251
Agricultural		3,900		1,580		2,202		3,782		151
Consumer		4		4		-		4		-
Other commercial loans		2,517		1,555		347		1,902		147
Other agricultural loans		1,347		126		1,155		1,281		154
Total	$	21,220	$	14,865	$	4,807	$	19,672	$	735

The following tables includes the average balance of impaired loan receivables by class and the income recognized on these receivables for the three and nine month periods ended September 30, 2020 and 2019 (in thousands):

	For the Nine Months Ended
	September 30, 2020						September 30, 2019
	Average Recorded Investment		Interest Income Recognized		Interest Income Recognized Cash Basis		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized Cash Basis
Real estate loans:
Mortgages	$	998	$	15	$	-	$	1,075	$	12	$	-
Home Equity		142		5		-		108		4		-
Commercial		10,836		294		20		11,768		342		11
Agricultural		3,718		58		-		5,068		61		-
Consumer		3		-		-		2		-		-
Other commercial loans		1,757		2		-		2,088		1		-
Other agricultural loans		1,275		6		-		1,419		4		-
Total	$	18,729	$	380	$	20	$	21,528	$	424	$	11

13

	For the Three Months Ended
	September 30, 2020						September 30, 2019
	Average Recorded Investment		Interest Income Recognized		Interest Income Recognized Cash Basis		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized Cash Basis
Real estate loans:
Mortgages	$	900	$	5	$	-	$	1,048	$	3	$	-
Home Equity		138		2		-		143		2		-
Commercial		9,436		75		18		11,906		112		-
Agricultural		3,633		18		-		4,795		5		-
Consumer		5		-		-		4		-		-
Other commercial loans		1,626		-		-		2,073		-		-
Other agricultural loans		1,259		2		-		1,408		-		-
Total	$	16,997	$	102	$	18	$	21,377	$	122	$	-

Credit Quality Information

For commercial real estate, agricultural real estate, construction, other commercial, other agricultural and state and political subdivision loans, management uses a nine grade internal risk rating system to monitor and assess credit quality. The first five categories are considered not criticized and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The definitions of each rating are defined below:

• Pass (Grades 1-5) – These loans are to customers with credit quality ranging from an acceptable to very high quality and are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

• Special Mention (Grade 6) – This loan grade is in accordance with regulatory guidance and includes loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

• Substandard (Grade 7) – This loan grade is in accordance with regulatory guidance and includes loans that have a well-defined weakness based on objective evidence and be characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

• Doubtful (Grade 8) – This loan grade is in accordance with regulatory guidance and includes loans that have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

• Loss (Grade 9) – This loan grade is in accordance with regulatory guidance and includes loans that are considered uncollectible, or of such value that continuance as an asset is not warranted.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay the loan as agreed, the Company’s loan rating process includes several layers of internal and external oversight. The Company’s loan officers are responsible for the timely and accurate risk rating of the loans in each of their portfolios at origination and on an ongoing basis under the supervision of management.  All commercial, agricultural and state and political relationships over $500,000 are reviewed annually to ensure the appropriateness of the loan grade. In addition, the Company engages an external consultant on at least an annual basis to: 1) review a minimum of 50% of the dollar volume of the commercial, agricultural and municipal loan portfolios on an annual basis, 2) review a sample of new loans originated for over $1.0 million in the last year, 3) review a sample of borrowers with commitments greater than or equal to $1.0 million,  4) review selected loan relationships over $750,000 which are over 30 days past due or classified Special Mention, Substandard, Doubtful, or Loss, and 5) such other loans which management or the consultant deems appropriate.

14

The following tables represent credit exposures by internally assigned grades as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	514,291	$	10,727	$	10,400	$	38	$	-	$	535,456
Agricultural		287,998		11,882		10,822		-		-		310,702
Construction		28,656		-		-		-		-		28,656
Other commercial loans		124,563		1,239		3,843		86		-		129,731
Other agricultural loans		37,529		1,593		1,668		-		-		40,790
State and political subdivision loans		81,493		-		342		-		-		81,835
Total	$	1,074,530	$	25,441	$	27,075	$	124	$	-	$	1,127,170

December 31, 2019	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	329,831	$	4,305	$	7,848	$	39	$	-	$	342,023
Agricultural		287,044		14,261		10,159		-		-		311,464
Construction		15,519		-		-		-		-		15,519
Other commercial loans		66,880		984		2,042		64		-		69,970
Other agricultural loans		51,711		1,077		2,324		-		-		55,112
State and political subdivision loans		93,993		-		453		-		-		94,446
Total	$	844,978	$	20,627	$	22,826	$	103	$	-	$	888,534

For residential real estate mortgages, home equity and consumer loans, credit quality is monitored based on whether the loan is performing or non-performing, which is typically based on the aging status of the loan and payment activity, unless a specific action, such as bankruptcy, repossession, death or significant delay in payment occurs to raise awareness of a possible credit event. Non-performing loans include those loans that are considered nonaccrual, described in more detail below, and all loans past due 90 or more days and still accruing. The following table presents the recorded investment in those loan classes based on payment activity as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	149,171	$	1,466	$	20	$	150,657
Home Equity		57,407		20		-		57,427
Consumer		30,613		12		-		30,625
Total	$	237,191	$	1,498	$	20	$	238,709
December 31, 2019	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	156,151	$	904	$	23	$	157,078
Home Equity		59,950		60		-		60,010
Consumer		9,939		8		-		9,947
Total	$	226,040	$	972	$	23	$	227,035

15

Aging Analysis of Past Due Loan Receivables

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table includes an aging analysis of the recorded investment of past due loan receivables as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		PCI		Total Loan Receivables		90 Days or Greater and Accruing
Real estate loans:
Mortgages	$	736	$	208	$	811	$	1,755	$	148,882	$	20	$	150,657	$	622
Home Equity		100		43		18		161		57,266		-		57,427		-
Commercial		1,651		78		4,805		6,534		525,616		3,306		535,456		413
Agricultural		116		215		1,327		1,658		307,322		1,722		310,702		147
Construction		-		-		-		-		28,656		-		28,656		-
Consumer		142		33		12		187		30,438		-		30,625		12
Other commercial loans		169		-		1,491		1,660		128,071		-		129,731		-
Other agricultural loans		9		-		136		145		40,339		306		40,790		-
State and political subdivision loans		-		-		-		-		81,835		-		81,835		-
Total	$	2,923	$	577	$	8,600	$	12,100	$	1,348,425	$	5,354	$	1,365,879	$	1,194

Loans considered non-accrual	$	53	$	-	$	7,406	$	7,459	$	4,252	$	-	$	11,711
Loans still accruing		2,870		577		1,194		4,641		1,344,173		5,354		1,354,168
Total	$	2,923	$	577	$	8,600	$	12,100	$	1,348,425	$	5,354	$	1,365,879

December 31, 2019	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		PCI		Total Loan Receivables		90 Days or Greater and Accruing
Real estate loans:
Mortgages	$	581	$	57	$	319	$	957	$	156,098	$	23	$	157,078	$	1
Home Equity		334		11		56		401		59,609		-		60,010		1
Commercial		750		573		3,720		5,043		335,770		1,210		342,023		-
Agricultural		118		-		785		903		310,561		-		311,464		299
Construction		-		-		-		-		15,519		-		15,519		-
Consumer		113		10		8		131		9,816		-		9,947		2
Other commercial loans		217		71		1,946		2,234		67,687		49		69,970		184
Other agricultural loans		29		32		-		61		55,051		-		55,112		-
State and political subdivision loans		-		-		-		-		94,446		-		94,446		-
Total	$	2,142	$	754	$	6,834	$	9,730	$	1,104,557	$	1,282	$	1,115,569	$	487

Loans considered non-accrual	$	90	$	95	$	6,347	$	6,532	$	5,004	$	-	$	11,536
Loans still accruing		2,052		659		487		3,198		1,099,553		1,282		1,104,033
Total	$	2,142	$	754	$	6,834	$	9,730	$	1,104,557	$	1,282	$	1,115,569

16

Nonaccrual Loans

Loans are considered for non-accrual status upon reaching 90 days delinquency, although the Company may be receiving partial payments of interest and partial repayments of principal on such loans, or if full payment of principal and interest is not expected. Additionally, if management is made aware of other information including bankruptcy, repossession, death, or legal proceedings, the loan may be placed on non-accrual status. If a loan is 90 days or more past due and is well secured and in the process of collection, it may still be considered accruing.

The following table reflects the loan receivables, excluding PCI loans, on non-accrual status as of September 30, 2020 and December 31, 2019, respectively. The balances are presented by class of loan receivable (in thousands):

	September 30, 2020		December 31, 2019
Real estate loans:
Mortgages	$	844	$	903
Home Equity		20		59
Commercial		5,141		5,080
Agricultural		3,161		2,578
Consumer		-		6
Other commercial loans		1,551		1,837
Other agricultural loans		994		1,073
	$	11,711	$	11,536

Loan Modifications Related to COVID-19

The Company has elected to follow the loan modification guidance under Section 4013 of the CARES Act with regard to COVID-19 modifications made between March 1, 2020 and the earlier of either December 31, 2020 or the 60th day after the end of the COVID-19 national emergency. Under section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. A financial institution can then suspend the requirements under GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a TDR, and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting purposes. Similarly, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs. A modification of six months or less is considered to be a short-term loan modification. In response to the COVID-19 pandemic, the Company has prudently executed loan modifications for existing loan customers, which includes deferrals of interest and in certain cases deferrals of principal and interest. The following table presents information regarding loans which were subject to a loan modification related to COVID-19, with balances as of the date of modification and September 30, 2020, as well as the balance by modification type as of September 30, 2020.

	Number of loans		Balance as of Modification date		Number of loans as of September 30, 2020		Balance as of September 30, 2020		Principal and Interest Deferral		Principal Deferral		% of loans as of September 30, 2020
Real estate loans:
Mortgages		49	$	9,996		1	$	75	$	75	$	-		0.05	%
Home Equity		29		1,389		-		-		-		-		0.00	%
Commercial		259		144,647		9		17,712		13,039		4,673		3.31	%
Agricultural		50		20,421		2		2,368		-		2,368		0.76	%
Construction		3		1,178		-		-		-		-		0.00	%
Consumer		10		68		-		-		-		-		0.00	%
Other commercial loans		88		24,077		-		-		-		-		0.00	%
Other agricultural loans		46		3,347		-		-		-		-		0.00	%
Total		534	$	205,123		12	$	20,155	$	13,114	$	7,041		1.48	%

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Troubled Debt Restructurings

In situations where, for economic or legal reasons related to a borrower’s financial difficulties, management may grant a concession for other than an insignificant period of time to the borrower that would not otherwise be considered, the related loan is classified as a Troubled Debt Restructuring (TDR). Management strives to identify borrowers in financial difficulty early and work with them to structure more affordable terms before their loan reaches nonaccrual status. These restructured terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where borrowers are granted new terms that provide for a reduction of interest or principal, or both, management measures any impairment on the restructuring by calculating the present value of the revised loan terms and comparing this balance to the Company’s investment in the loan prior to the restructuring. As these loans are individually evaluated, they are excluded from pooled portfolios when calculating the allowance for loan and lease losses and a separate allocation within the allowance for loan and lease losses is provided. Management continually evaluates loans that are considered TDRs, including payment history under the modified loan terms, the borrower’s ability to continue to repay the loan based on continued evaluation of their operating results and cash flows from operations.  As of September 30, 2020 and December 31, 2019, included within the allowance for loan losses are reserves of $293,000 and $345,000 respectively, that are associated with loans modified as TDRs.

Loan modifications that are considered TDRs completed during the three and nine months ended September 30, 2020 and 2019 were as follows (dollars in thousands):

	For the Three Months Ended September 30, 2020
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		1	$	-	$	276	$	-	$	276
Consumer		-		1		-		3		-		3
Total		-		2	$	-	$	279	$	-	$	279

	For the Nine Months Ended September 30, 2020
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		3		-		682		-		682
Agricultural		-		1		-		150		-		150
Consumer		-		1		-		3		-		3
Total		-		5	$	-	$	835	$	-	$	835

	For the Three Months Ended September 30, 2019
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		1	$	-	$	118	$	-	$	118
Consumer		-		1		-		3		-		3
Total		-		2	$	-	$	121	$	-	$	121

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	For the Nine Months Ended September 30, 2019
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Mortgages		-		1	$	-	$	4	$	-	$	4
Home Equity		-		1		-		40		-		40
Commercial		-		5		-		918		-		918
Consumer		-		1		-		3		-		3
Total		-		8	$	-	$	965	$	-	$	965

Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-accrual loan. Recidivism on modified loans occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans. The following table presents the recorded investment in loans that were modified as TDRs during each 12-month period prior to the current reporting periods, which began January 1, 2020 and 2019 (9 month periods) and July 1, 2020 and 2019 (3 month periods), respectively, and that subsequently defaulted during these reporting periods (dollars in thousands):

	For the Three Months Ended								For the Nine Months Ended
	September 30, 2020				September 30, 2019				September 30, 2020				September 30, 2019
	Number of contracts		Recorded investment		Number of contracts		Recorded investment		Number of contracts		Recorded investment		Number of contracts		Recorded investment
Real estate loans:
Commercial		1	$	110		-	$	-		1	$	110		1	$	542
Agricultural		-		-		-		-		-		-		1		1,439
Other agricultural loans		-		-		-		-		-		-		4		261
Total recidivism		1	$	110		-	$	-		1	$	110		6	$	2,242

Allowance for Loan Losses

The following table segregates the allowance for loan losses (ALLL) into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of September 30, 2020 and December 31, 2019, respectively (in thousands):

	September 30, 2020						December 31, 2019
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
Real estate loans:
Residential	$	29	$	1,190	$	1,219	$	32	$	1,082	$	1,114
Commercial		341		4,965		5,306		251		4,298		4,549
Agricultural		79		4,727		4,806		151		4,871		5,022
Construction		-		85		85		-		43		43
Consumer		12		340		352		-		112		112
Other commercial loans		181		1,049		1,230		147		1,108		1,255
Other agricultural loans		149		586		735		154		807		961
State and political subdivision loans		-		514		514		-		536		536
Unallocated		-		922		922		-		253		253
Total	$	791	$	14,378	$	15,169	$	735	$	13,110	$	13,845

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The following tables roll forward the balance of the ALLL by portfolio segment for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands):

	For the three months ended September 30, 2020
	Balance at June 30, 2020		Charge-offs			Recoveries		Provision			Balance at September 30, 2020
Real estate loans:
Residential	$	1,206	$	-		$	-	$	13		$	1,219
Commercial		4,944		(220	)		3		579			5,306
Agricultural		5,061		(4	)		19		(270	)		4,806
Construction		81		-			-		4			85
Consumer		362		(12	)		3		(1	)		352
Other commercial loans		1,201		(1	)		4		26			1,230
Other agricultural loans		821		-			-		(86	)		735
State and political subdivision loans		547		-			-		(33	)		514
Unallocated		604		-			-		318			922
Total	$	14,827	$	(237	)	$	29	$	550		$	15,169

	For the three months ended September 30, 2019
	Balance at June 30, 2019		Charge-offs			Recoveries		Provision			Balance at September 30, 2019
Real estate loans:
Residential	$	1,066	$	(24	)	$	-	$	49		$	1,091
Commercial		4,400		-			-		241			4,641
Agricultural		4,532		-			-		180			4,712
Construction		36		-			-		(17	)		19
Consumer		118		(10	)		6		5			119
Other commercial loans		1,328		-			3		18			1,349
Other agricultural loans		741		-			-		128			869
State and political subdivision loans		539		-			-		(3	)		536
Unallocated		544		-			-		(201	)		343
Total	$	13,304	$	(34	)	$	9	$	400		$	13,679

	For the nine months ended September 30, 2020
	Balance at December 31, 2019		Charge-offs			Recoveries		Provision			Balance at September 30, 2020
Real estate loans:
Residential	$	1,114	$	-		$	-	$	105		$	1,219
Commercial		4,549		(221	)		37		941			5,306
Agricultural		5,022		(4	)		19		(231	)		4,806
Construction		43		-			-		42			85
Consumer		112		(30	)		15		255			352
Other commercial loans		1,255		(1	)		9		(33	)		1,230
Other agricultural loans		961		-			-		(226	)		735
State and political subdivision loans		536		-			-		(22	)		514
Unallocated		253		-			-		669			922
Total	$	13,845	$	(256	)	$	80	$	1,500		$	15,169

20

	For the nine months ended September 30, 2019
	Balance at December 31, 2018		Charge-offs			Recoveries		Provision			Balance at September 30, 2019
Real estate loans:
Residential	$	1,105	$	(24	)	$	-	$	10		$	1,091
Commercial		4,115		(293	)		-		819			4,641
Agricultural		4,264		-			-		448			4,712
Construction		58		-			-		(39	)		19
Consumer		120		(32	)		24		7			119
Other commercial loans		1,354		(38	)		8		25			1,349
Other agricultural loans		752		-			-		117			869
State and political subdivision loans		762		-			-		(226	)		536
Unallocated		354		-			-		(11	)		343
Total	$	12,884	$	(387	)	$	32	$	1,150		$	13,679

The Company allocates the ALLL based on the factors described below, which conform to the Company’s loan classification policy and credit quality measurements. In reviewing risk within the Company’s loan portfolio, management has determined there to be several different risk categories within the loan portfolio. The ALLL consists of amounts applicable to: (i) residential real estate loans; (ii) residential real estate home equity loans; (iii) commercial real estate loans; (iv) agricultural real estate loans; (v) real estate construction loans; (vi) other commercial and agricultural loans; (vii) consumer loans; (viii) other agricultural loans and (ix) state and political subdivision loans. Factors considered in this process include general loan terms, collateral, and availability of historical data to support the analysis. Historical loss percentages are calculated and used as the basis for calculating allowance allocations. Certain qualitative factors are evaluated to determine additional inherent risks in the loan portfolio, which are not necessarily reflected in the historical loss percentages. These factors are then added to the historical allocation percentage to get the adjusted factor to be applied to non-classified loans. The following qualitative factors are analyzed:

• Level of and trends in delinquencies and impaired/classified loans

▪ Change in volume and severity of past due loans

▪ Volume of non-accrual loans

▪ Volume and severity of classified, adversely or graded loans;

• Level of and trends in charge-offs and recoveries;

• Trends in volume, terms and nature of the loan portfolio;

• Effects of any changes in risk selection and underwriting standards and any other changes in lending and recovery policies, procedures and practices;

• Changes in the quality of the Company’s loan review system;

• Experience, ability and depth of lending management and other relevant staff;

• National, state, regional and local economic trends and business conditions

▪ General economic conditions

▪ Unemployment rates

▪ Inflation rate/ Consumer Price Index

▪ Changes in values of underlying collateral for collateral-dependent loans;

• Industry conditions including the effects of external factors such as competition, legal, and regulatory requirements on the level of estimated credit losses;

• Existence and effect of any credit concentrations, and changes in the level of such concentrations; and

• Any change in the level of board oversight.

The Company analyzes its loan portfolio at least each quarter to determine the adequacy of its ALLL.

Loans determined to be TDRs are impaired and for purposes of estimating the ALLL must be individually evaluated for impairment. In calculating the impairment, the Company calculates the present value utilizing an analysis of discounted cash flows. If the present value calculated is below the recorded investment of the loan, impairment is recognized by a charge to the provision for loan and lease losses and a credit to the ALLL.

21

For the three months ended September 30, 2020, the allowance for commercial real estate, agricultural real estate and other agricultural loans was increased due to a general deterioration in economic activity as a result of the Covid-19 pandemic. In addition, residential real estate was increased due to an increase in past due loans. The factor related to the volume and severity of classified, adversely or graded loans was decreased for municipal loans, agriculture real estate loans and other agricultural loans due to a decrease in classified loans.  The decrease in the provision for agricultural real estate loans and  other agricultural loans is due to the decrease in outstanding loans in these loan portfolios as of September 30, 2020 compared to June 30, 2020.

For the nine months ended September 30, 2020, the allowance for all categories was increased due to a general deterioration in economic activity and increase in unemployment as a result of the Covid-19 pandemic. In addition, commercial real estate was increased due to an increase in past due and nonaccrual loans. Factors related to residential real estate were increased due to an increase in past due loans. The factor related to the volume and severity of classified, adversely or graded loans was decreased for municipal loans, agriculture real estate loans and other agricultural loans due to a decrease in classified loans. The decrease in the provision for other agricultural loans is due to the decrease in outstanding loans in these loan portfolios as of September 30, 2020 compared to December 31, 2019.

For the three months ended September 30, 2019, the allowance for commercial real estate was increased in general reserves due to an increase in the size of the portfolio and an increase in the historical loss percentage of the portfolio. This was represented as an increase in the provision. The allowance for agricultural real estate loans was increased in general reserves as a result of overall growth in the portfolio. The result of this was represented as an increase in the provision. The allowance for other agricultural loans was increased as a result of a general increase in the size of the portfolio. The result of these changes was represented as an increase in the provision.

For the nine months ended September 30, 2019, the allowance for commercial real estate was increased in general reserves due to general increase in the size of the portfolio and an increase in the historical loss percentage of the portfolio. There also was an increase in specific reserves for commercial real estate, which was partially offset by the decrease in substandard loans. The total change was represented as an increase in the provision. The allowance for agricultural real estate loans was increased in general reserves as a result of higher loan balances. Additionally, there was an increase in specific reserves. The allowance for other agricultural loans was increased as a result of a general increase in the size of the portfolio. The result of these changes was represented as an increase in the provision. These resulted in an increase in the provision. The allowance for state and political subdivision was decreased as a result a decrease in the volume of classified loans. The result of this change was represented as a decrease in the provision.

Foreclosed Assets Held For Sale

Foreclosed assets acquired in settlement of loans are carried at fair value, less estimated costs to sell, and are included in other assets on the Consolidated Balance Sheet. As of September 30, 2020 and December 31, 2019, included within other assets are $2,726,000 and $3,404,000, respectively, of foreclosed assets. As of September 30, 2020, included within the foreclosed assets are $199,000 of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to the period end. As of September 30, 2020, the Company had initiated formal foreclosure proceedings on $723,000 of consumer residential mortgages, which had not yet been transferred into foreclosed assets In accordance with various state regulations, foreclosure actions have been suspended into the fourth quarter.

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Note 6 – Goodwill and Other Intangible Assets

The following table provides the gross carrying value and accumulated amortization of intangible assets as of September 30, 2020 and December 31, 2019 (in thousands):

	September 30, 2020							December 31, 2019
	Gross carrying value		Accumulated amortization			Net carrying value		Gross carrying value		Accumulated amortization			Net carrying value
Amortized intangible assets (1):
MSRs	$	2,058	$	(1,220	)	$	838	$	1,718	$	(1,077	)	$	641
Core deposit intangibles		1,943		(1,243	)		700		1,786		(1,081	)		705
Covenant not to compete		125		(125	)		-		125		(125	)		-
Total amortized intangible assets	$	4,126	$	(2,588	)	$	1,538	$	3,629	$	(2,283	)	$	1,346
Unamortized intangible assets:
Goodwill	$	31,376						$	23,296

(1) Excludes fully amortized intangible assets

The following table provides the current year and estimated future amortization expense for amortized intangible assets for the next five years (in thousands). We based our projections of amortization expense shown below on existing asset balances at September 30, 2020. Future amortization expense may vary from these projections:

	MSRs		Core deposit intangibles		Covenant not to compete		Total
Three months ended September 30, 2020 (actual)	$	46	$	57	$	-	$	103
Nine months ended September 30, 2020 (actual)		144		162		-		306
Three months ended September 30, 2019 (actual)		44		58		8		110
Nine months ended September 30, 2019 (actual)		138		174		24		336
Estimate for year ending December 31,
Remaining 2020		60		55		-		115
2021		213		192		-		405
2022		168		156		-		324
2023		130		121		-		251
2024		98		85		-		183
Thereafter		169		91		-		260
Total	$	838	$	700	$	-	$	1,538

Note 7 - Employee Benefit Plans

For additional detailed disclosure on the Company’s pension and employee benefits plans, please refer to Note 11 of the Company’s Consolidated Financial Statements included in the 2019 Annual Report on Form 10-K.

Noncontributory Defined Benefit Pension Plan

The Bank sponsors a trusteed noncontributory defined benefit pension plan (“Pension Plan”) covering substantially all employees and officers hired prior to January 1, 2007. Additionally, the Bank assumed the noncontributory defined benefit pension plan of the First National Bank of Fredericksburg (FNB) when FNB was acquired in December 2015. The FNB plan was closed and all assets were distributed in the fourth quarter of 2019. The Bank’s funding policy is to make annual contributions, if needed, based upon the funding formula developed by the plans’ actuary. Any employee with a hire date of January 1, 2007 or later is not eligible to participate in the Pension Plan.

In lieu of the Pension Plan, employees with a hire date of January 1, 2007 or later are eligible to receive, after meeting certain length of service requirements, an annual discretionary 401(k) plan contribution from the Bank equal to a percentage of an employee’s base compensation.  The contribution amount, if any, is placed in a separate account within the 401(k) plan and is subject to a vesting requirement.

23

For employees who are eligible to participate in the Pension Plan, the Pension Plan requires benefits to be paid to eligible employees based primarily upon age and compensation rates during employment.  Upon retirement or other termination of employment, employees can elect either an annuity benefit or a lump sum distribution of vested benefits in the Pension Plan.

The following sets forth the components of net periodic benefit costs of the Pension Plan and the line item on the Consolidated Statement of Income where such amounts are included, for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019			Affected line item on the Consolidated Statement of Income
Service cost	$	82		$	78		$	247		$	256		Salary and Employee Benefits
Interest cost		83			123			249			401		Other Expenses
Expected return on plan assets		(215	)		(187	)		(646	)		(595	)	Other Expenses
Partial Settlement		-			-			307			-		Other Expenses
Net amortization and deferral		59			60			175			181		Other Expenses
Net periodic benefit cost	$	9		$	74		$	332		$	243

The Bank expects to contribute $250,000 to the Pension Plan during the fourth quarter of 2020.

Restricted Stock Plan

The Company maintains a Restricted Stock Plan (the “Plan”) whereby employees and non-employee corporate directors are eligible to receive awards of restricted stock based upon performance related requirements.  Awards granted under the Plan are in the form of the Company’s common stock and are subject to certain vesting requirements including continuous employment or service with the Company.  In April of 2016, the Company’s stockholders authorized a total of 150,000 shares of the Company’s common stock to be made available under the Plan. As of September 30, 2020, 124,479 shares remain available to be issued under the Plan.  The Plan assists the Company in attracting, retaining and motivating employees to make substantial contributions to the success of the Company and to increase the emphasis on the use of equity as a key component of compensation.

The following table details the vesting, awarding and forfeiting of restricted stock during the three and nine months ended September 30, 2020:

	Three months				Nine months
	Unvested Shares		Weighted Average Market Price		Unvested Shares			Weighted Average Market Price
Outstanding, beginning of period		10,786	$	56.60		10,877		$	60.11
Granted		85		58.37		4,732			51.29
Forfeited		-		-		-			-
Vested		-		-		(4,738	)		(59.32	)
Outstanding, end of period		10,871	$	56.61		10,871		$	56.61

Compensation expense related to restricted stock is recognized, based on the market price of the stock at the grant date, over the vesting period. Compensation expense related to restricted stock was $248,000 and $219,000 for the nine months ended September 30, 2020 and 2019, respectively. For the three months ended September 30, 2020 and 2019, compensation expense totaled $83,000 and $78,000, respectively. At September 30, 2020, the total compensation cost related to nonvested awards that had not yet been recognized was $615,000, which is expected to be recognized over the next three years.

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Note 8 – Accumulated Comprehensive Income (Loss)

The following tables present the changes in accumulated other comprehensive income (loss) by component, net of tax, for the three and nine months ended September 30, 2020 and 2019 (in thousands):

	Nine months ended September 30, 2020
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Unrealized loss on interest rate swap (a)			Total
Balance as of December 31, 2019	$	2,290		$	(2,919	)	$	-		$	(629	)
Other comprehensive income (loss) before reclassifications (net of tax)		3,705			-			(353	)		3,352
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)		(239	)		381			-			142
Net current period other comprehensive income (loss)		3,466			381			(353	)		3,494
Balance as of September 30, 2020	$	5,756		$	(2,538	)	$	(353	)	$	2,865

	Nine months ended September 30, 2019
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Unrealized loss on interest rate swap (a)		Total
Balance as of December 31, 2018	$	(973	)	$	(2,948	)	$	-	$	(3,921	)
Other comprehensive income (loss) before reclassifications (net of tax)		3,495			-			-		3,495
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)		(6	)		143			-		137
Net current period other comprehensive income (loss)		3,489			143			-		3,632
Balance as of September 30, 2019	$	2,516		$	(2,805	)	$	-	$	(289	)

	Three months ended September 30, 2020
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Unrealized loss on interest rate swap (a)			Total
Balance as of June 30, 2020	$	5,938		$	(2,585	)	$	(446	)	$	2,907
Other comprehensive income (loss) before reclassifications (net of tax)		(35	)		-			93			58
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)		(147	)		47			-			(100	)
Net current period other comprehensive income (loss)		(182	)		47			93			(42	)
Balance as of September 30, 2020	$	5,756		$	(2,538	)	$	(353	)	$	2,865

	Three months ended September 30, 2019
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Unrealized loss on interest rate swap (a)		Total
Balance as of June 30, 2019	$	2,515		$	(2,852	)	$	-	$	(337	)
Other comprehensive income (loss) before reclassifications (net of tax)		7			-			-		7
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)		(6	)		47			-		41
Net current period other comprehensive income (loss)		1			47			-		48
Balance as of September 30, 2019	$	2,516		$	(2,805	)	$	-	$	(289	)

(a) Amounts in parentheses indicate debits on the Consolidated Balance Sheet.

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The following table presents the significant amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2020 and 2019 (in thousands):

Details about accumulated other comprehensive income (loss)	Amount reclassified from accumulated comprehensive income (loss) (a)						Affected line item in the Consolidated Statement of  Income
	Three Months Ended September 30, 2020
	2020			2019
Unrealized gains and losses on available for sale securities
	$	185		$	8		Available for sale securities gains, net
		(38	)		(2	)	Provision for income taxes
	$	147		$	6
Defined benefit pension items
	$	(59	)	$	(60	)	Other expenses
		12			13		Provision for income taxes
	$	(47	)	$	(47	)
Total reclassifications	$	100		$	(41	)

	Nine Months Ended September 30,
	2020			2019
Unrealized gains and losses on available for sale securities
	$	302		$	8		Available for sale securities gains, net
		(63	)		(2	)	Provision for income taxes
	$	239		$	6
Defined benefit pension items
	$	(482	)	$	(181	)	Other expenses
		101			38		Provision for income taxes
	$	(381	)	$	(143	)
Total reclassifications	$	(142	)	$	(137	)

(a) Amounts in parentheses indicate expenses and other amounts indicate income on the Consolidated Statement of Income

Note 9 – Fair Value Measurements

The Company has established a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by this hierarchy are as follows:

Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level III: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. Our valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s monthly and/or quarterly valuation process.

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Assets and Liabilities Required to be Measured at Fair Value on a Recurring Basis

The fair values of equity securities and securities available for sale are determined by quoted prices in active markets, when available, and classified as Level I. If quoted market prices are not available, the fair value is determined by a matrix pricing, which is a mathematical technique, widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities and classified as Level II. The fair values consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

The following tables present the assets and liabilities reported on the Consolidated Balance Sheet at their fair value on a recurring basis as of September 30, 2020 and December 31, 2019 by level within the fair value hierarchy (in thousands). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

September 30, 2020	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Assets
Equity securities	$	1,696	$	-	$	-	$	1,696
Available for sale securities:
U.S. Agency securities		-		80,698		-		80,698
U.S. Treasury securities		28,167		-		-		28,167
Obligations of state and    political subdivisions		-		91,848		-		91,848
Corporate obligations		-		6,507		-		6,507
Mortgage-backed securities in    government sponsored entities		-		80,618		-		80,618
Liabilities
Interest rate swaps		-		448		-		448
December 31, 2019	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Assets
Equity securities	$	701	$	-	$	-	$	701
Available for sale securities:
U.S. Agency securities		-		84,863		-		84,863
U.S. Treasuries securities		27,661		-		-		27,661
Obligations of state and    political subdivisions		-		61,455		-		61,455
Corporate obligations		-		3,328		-		3,328
Mortgage-backed securities in       government sponsored entities		-		63,399		-		63,399

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Assets and Liabilities Required to be Measured and Reported at Fair Value on a Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis as of September 30, 2020 and December 31, 2019 are included in the table below (in thousands):

September 30, 2020	Level I		Level II		Level III		Total
Impaired Loans	$	-	$	-	$	4,072	$	4,072
Other real estate owned		-		-		2,692		2,692
December 31, 2019	Level I		Level II		Level III		Total
Impaired Loans	$	-	$	-	$	3,860	$	3,860
Other real estate owned		-		-		3,299		3,299

• Impaired Loans - The Company has measured impairment on impaired loans generally based on the fair value of the loan’s collateral.  Fair value is generally determined based upon independent third-party appraisals of the properties. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed.   Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value.  If the fair value of the collateral dependent loan is less than the carrying amount of the loan a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included in the table above as a Level III measurement.  If the fair value of the collateral exceeds the carrying amount of the loan, then the loan is not included in the table above as it is not currently being carried at its fair value. The fair values above excluded estimated selling costs of $449,000 and $424,000 at September 30, 2020 and December 31, 2019, respectively.

• Other Real Estate Owned (OREO) – OREO is carried at the lower of cost or fair value, less estimated costs to sell, which is measured at the date of foreclosure.  If the fair value of the collateral exceeds the carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the table above. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. The fair value of OREO is based on the appraised value of the property, which is generally unadjusted by management and is based on comparable sales for similar properties in the same geographic region as the subject property, and is included in the above table as a Level II measurement.  In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed.  In these cases, the loans are categorized in the above table as a Level III measurement since these adjustments are considered to be unobservable inputs. Income and expenses from operations and further declines in the fair value of the collateral subsequent to foreclosure are included in net expenses from OREO.

The following table provides a listing of the significant unobservable inputs used in the fair value measurement process for items valued utilizing Level III techniques (dollars in thousands).

September 30, 2020	Fair Value		Valuation Technique(s)	Unobservable input	Range			Weighted average
Impaired Loans	$	4,072	Appraised Collateral Values	Discount for time since appraisal		0-100	%		17.70	%
				Selling costs		5%-10	%		9.25	%
				Holding period	0 - 12 months			11.86 months
Other real estate owned		2,692	Appraised Collateral Values	Discount for time since appraisal		10-30	%		18.79	%

December 31, 2019	Fair Value		Valuation Technique(s)	Unobservable input	Range			Weighted average
Impaired Loans		3,860	Appraised Collateral Values	Discount for time since appraisal		0-100	%		19.22	%
				Selling costs		5%-10	%		9.26	%
				Holding period	6 - 12 months			11.76 months
Other real estate owned		3,299	Appraised Collateral Values	Discount for time since appraisal		5-43	%		16.37	%

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Financial Instruments Not Required to be Measured or Reported at Fair Value

The carrying amount and fair value of the Company’s financial instruments that are not required to be measured or reported at fair value on a recurring basis are as follows (in thousands):

September 30, 2020	Carrying Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Interest bearing time deposits with other banks	$	13,758	$	14,406	$	-	$	-	$	14,406
Loans held for sale		19,320		19,320		-		-		19,320
Net loans		1,350,710		1,369,709		-		-		1,369,709
Financial liabilities:
Deposits		1,552,753		1,558,516		1,168,405		-		390,111
Borrowed funds		99,602		99,616		-		-		99,616

December 31, 2019	Carrying Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Interest bearing time deposits with other banks	$	14,256	$	14,635	$	-	$	-	$	14,635
Loans held for sale		815		815		-		-		815
Net loans		1,101,724		1,091,006		-		-		1,091,006
Financial liabilities:
Deposits		1,211,118		1,211,200		938,387		-		272,813
Borrowed funds		85,117		84,581		-		-		84,581

The carrying amounts for cash and due from banks, bank owned life insurance, regulatory stock, accrued interest receivable and payable approximate fair value and are considered Level I measurements.

Note 10 – Acquisition of MidCoast Community Bancorp, Inc.

In the third quarter of 2019, the Company announced the signing of a definitive merger agreement to acquire 100% of the outstanding equity interest of MidCoast Community Bancorp, Inc. (“MidCoast”) for $6.50 per share in cash and stock. MidCoast was a Pennsylvania Corporation that conducted its business primarily through, its wholly owned subsidiary MidCoast Community Bank, which operated from a main office in Wilmington, Delaware, and two branches in Wilmington, Delaware, and one branch in Dover, Delaware.

The transaction closed on April 17, 2020, with MidCoast Community Bank having been merged into First Citizens Community Bank, with First Citizens Community Bank as the surviving entity. The acquisition established the Company’s presence in the Wilmington and Dover, Delaware markets.

Under the terms of the merger agreement, the Company acquired all of the outstanding shares of MidCoast for a total purchase price of approximately $26,843,000.  As a result of the acquisition, the Company issued 373,356 common shares and $7.6 million in cash to the former shareholders of MidCoast. The shares were issued with a value of $51.50 per share, which was based on the close price of the Company’s stock on April 17, 2020.

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The acquired assets and assumed liabilities were measured at estimated fair values. Management made significant estimates and exercised significant judgment in accounting for the acquisition.  Management measured loan fair values based on loan file reviews, appraised collateral values, expected cash flows, and historical loss factors of MidCoast.  Real estate acquired through foreclosure was primarily valued based on appraised collateral values.  The Company also recorded an identifiable intangible asset representing the core deposit base of MidCoast based on management’s evaluation of the cost of such deposits relative to alternative funding sources.  Management used significant estimates including the average lives of depository accounts, future interest rate levels, and the cost of servicing various depository products.

The business combination resulted in the acquisition of loans with and without evidence of credit quality deterioration. MidCoast’s loans were deemed to have credit impairment at the acquisition date if the Company did not expect to receive all contractually required cash flows due to concerns about credit quality.  Such loans were fair valued and the difference between contractually required payments at the acquisition date and cash flows expected to be collected was recorded as a non-accretable difference. At the acquisition date, the Company recorded $4,869,000 of purchased credit-impaired loans. The method of measuring carrying value of purchased loans differs from loans originated by the Company (originated loans), and as such, the Company identifies purchased loans and purchased loans with a credit quality discount and originated loans at amortized cost.

MidCoast’s loans without evidence of credit deterioration were fair valued by discounting both expected principal and interest cash flows using an observable discount rate for similar instruments that a market participant would consider in determining fair value.  Additionally, consideration was given to management’s best estimates of default rates and pre-payment speeds.

The following table summarizes the purchase of MidCoast as of April 17, 2020:

(In Thousands, Except Per Share Data)
Purchase Price Consideration in Common Stock
Citizens Financial Services, Inc. shares issued		373,356
Value assigned to Citizens Financial Services, Inc. common share	$	51.50
Purchase price assigned to MidCoast common shares exchanged for Citizens Financial Services, Inc.				$	19,227
Purchase Price Consideration - Cash for Common Stock
Purchase price assigned to The First National Bank of Fredericksburg common shares exchanged for cash					7,616
Total Purchase Price					26,843
Net Assets Acquired:
MidCoast Community Bancorp, Inc shareholders’ equity	$	24,330
Adjustments to reflect assets acquired at fair value:
Investments
Loans
Interest rate		1,424
General credit		(4,375	)
Specific credit - non-amortizing		(2,135	)
Specific credit - amortizing		(966	)
Core deposit intangible		157
Owned premises		(426	)
Other assets		65
Deferred tax assets		2,217
Adjustments to reflect liabilities acquired at fair value:
Time deposits		(1,018	)
Borrowings		(497	)
Other liabilities		(13	)
					18,763
Goodwill resulting from merger				$	8,080

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The following condensed statement reflects the amounts recognized as of the acquisition date for each major class of asset acquired and liability assumed:

(In Thousands)
Total purchase price				$	26,843
Net assets acquired:
Cash and cash equivalents	$	8,637
Loans		223,235
Premises and equipment, net		1,787
Accrued interest receivable		586
Bank-owned life insurance		3,766
Intangibles		157
Deferred tax asset		3,402
Other assets		2,878
Time deposits		(123,841	)
Deposits other than time deposits		(84,985	)
Accrued interest payable		(164	)
Borrowings		(15,497	)
Other liabilities		(1,198	)
					18,763
Goodwill resulting from the MidCoast merger				$	8,080

The Company recorded goodwill and other intangibles associated with the acquisition of MidCoast totaling $8,237,000.  Goodwill is not amortized, but is periodically evaluated for impairment.  The Company did not recognize any impairment from April 17, 2020 to September 30, 2020. None of the goodwill acquired is expected to be deductible for tax purposes.

Identifiable intangibles are amortized to their estimated residual values over the expected useful lives. Such lives are also periodically reassessed to determine if any amortization period adjustments are required. For the period from April 17, 2020 to September 30, 2020, no such adjustments were recorded.  The identifiable intangible asset consists of core deposit intangibles which are being amortized on an accelerated basis over the useful life of such assets.  The gross carrying amount of the core deposit intangible at September 30, 2020 was $157,000, with $12,000 accumulated amortization, respectively, as of that date.

As of September 30, 2020, the current year and estimated future amortization expense for the core deposit intangibles was (in thousands):

	Core deposit intangibles
Three months ended September 30, 2020 (actual)	$	7
Nine months ended September 30, 2020 (actual)		12
Estimate for year ending December 31,
Remaining 2020		7
2021		27
2022		24
2023		21
2024		18
Thereafter		48
Total	$	145

Amounts recognized separately from the acquisition include primarily legal fees, investment banking fees, system conversion costs, severance costs and contract termination costs. These costs were included in merger and acquisition expenses within non-interest expenses on the Consolidated Statement of Income and amounted to approximately $2,179,000 for the nine months ended September 30, 2020.

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Results of operations for MidCoast prior to the acquisition date are not included in the Consolidated Statement of Income for the nine months ended September 30, 2020. 

The following table presents financial information regarding the former MidCoast operations included in our Consolidated Statement of Income from the date of acquisition through September 30, 2020 under the column “Actual from Acquisition Date through September 30, 2020”.  In addition, the following table presents unaudited pro forma information as if the acquisition of MidCoast had occurred on January 1, 2019 under the “Pro Forma” columns.  The table below has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisition occurred as of the beginning of the periods presented, nor is it indicative of future results. Furthermore, the unaudited proforma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings as a result of the integration and consolidation of the acquisition.  Merger and acquisition integration costs and amortization of fair value adjustments are included in the numbers below.

			Pro Forma for
	Actual from Acquisition		Three Months Ended				Nine Months Ended
	Date Through		September 30,				September 30,
(In Thousands, Except Per Share Data)	September 30, 2020		2020		2019		2020		2019
Net interest income	$	5,387	$	16,052	$	15,404	$	47,642	$	44,918
Non-interest income		107		3,538		2,239		7,779		6,416
Net income		3,035		7,678		5,849		16,306		16,649
Pro forma earnings per share:
Basic			$	1.96	$	1.49	$	4.16	$	4.23
Diluted			$	1.96	$	1.49	$	4.16	$	4.23

Note 11 – Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.  The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset.  The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted.  In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. In that regard, we have formed a cross-functional working group. The working group is comprised of individuals from various functional areas including credit, loan origination and finance. We are currently working through our implementation plan which includes assessment and documentation of processes, internal controls and data sources; model development and documentation; and system configuration, among other things. We are also in the process of implementing a third-party vendor solution to assist us in the application of the ASU 2016-13. The adoption of the ASU 2016-13 could result in an increase in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. While we are currently unable to reasonably estimate the impact of adopting ASU 2016-13, we expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan portfolio as well as the prevailing economic conditions and forecasts as of the adoption date.

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In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test.  In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.  Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which deferred the effective date for ASC 350, Intangibles – Goodwill and Other, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements.  The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits (Topic 715-20). This Update amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The Update eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The Update also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. This Update is effective for public business entities for fiscal years ending after December 15, 2020, and must be applied on a retrospective basis.  For all other entities, this Update is effective for fiscal years ending after December 15, 2021.  This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

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In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. Topic 326, Financial Instruments – Credit Losses amendments are effective for SEC registrants for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other public business entities, the effective date is for fiscal years beginning after December 15, 2020, and for all other entities, the effective date is for fiscal years beginning after December 15, 2021.  Topic 815, Derivatives and Hedging amendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. For entities that have adopted the amendments in Update 2017-12, the effective date is as of the beginning of the first annual period beginning after the issuance of this Update. Topic 825, Financial Instruments amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Furthermore, the ASU provides a one-year deferral of the effective dates of the ASUs on derivatives and hedging for companies that are not public business entities. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses, Topic 326, which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for the applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted ASU 2016-13, the effective dates and transition requirements are the same as those in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-05 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted once ASU 2016-13 has been adopted.  In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company qualifies as a smaller reporting company and does not expect to early adopt ASU 2016-13.

In July 2019, the FASB issued ASU 2019-07, Codification Updates to SEC Sections, Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates. This ASU amends various SEC paragraphs pursuant to the issuance of SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization. Other miscellaneous updates to agree to the electronic Code of Federal Regulations also have been incorporated.

In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The Update defers the effective dates of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This Update also amends the mandatory effective date for the elimination of Step 2 from the goodwill impairment test under ASU No. 2017-04, Intangibles ‒ Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (Goodwill), to align with those used for credit losses. Furthermore, the ASU provides a one-year deferral of the effective dates of the ASUs on derivatives and hedging and leases for companies that are not public business entities. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

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In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event; and extends the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis. The effective dates in this Update are the same as those applicable for ASU 2019-10. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s consolidated financial position or results of operations.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), to simplify the accounting for income taxes, change the accounting for certain tax transactions, and make minor improvements to the codification. This Update provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and provides guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction. The Update also changes current guidance for making an intraperiod allocation, if there is a loss in continuing operations and gains outside of continuing operations; determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method of accounting; accounting for tax law changes and year-to-date losses in interim periods; and determining how to apply the income tax guidance to franchise taxes that are partially based on income. For public business entities, the amendments in this Update are effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s consolidated financial position or results of operations.

In January 2020, the FASB issued ASU 2020-1, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), to clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The amendments also clarify that, for the purpose of applying paragraph 815-10-15-141(a) an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option, in accordance with the financial instruments guidance in Topic 825. An entity also would evaluate the remaining characteristics in paragraph 815-10-15-141 to determine the accounting for those forward contracts and purchased options. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s consolidated financial position or results of operations.

In January 2020, the FASB issued ASU 2020-2, Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), February 2020, to add and amend SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Accounting Bulletin No. 119, related to the new credit losses standard, and comments by the SEC staff related to the revised effective date of the new leases standard. This ASU is effective upon issuance. This did not have a significant impact on the Company’s consolidated financial statements.

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In March 2020, the FASB issued ASU 2020-3, Codification Improvements to Financial Instruments. This ASU was issued to improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. The ASU includes seven issues that describe the areas of improvement and the related amendments to GAAP; they are intended to make the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope and are not expected to significantly change practice for most entities. Among its provisions, the ASU clarifies that all entities, other than public business entities that elected the fair value option, are required to provide certain fair value disclosures under ASC 825, Financial Instruments, in both interim and annual financial statements. It also clarifies that the contractual term of a net investment in a lease under Topic 842 should be the contractual term used to measure expected credit losses under Topic 326. Amendments related to ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is not permitted before an entity’s adoption of ASU 2016-01. Amendments related to ASU 2016-13 for entities that have not yet adopted that guidance are effective upon adoption of the amendments in ASU 2016-13. Early adoption is not permitted before an entity’s adoption of ASU 2016-13. Amendments related to ASU 2016-13 for entities that have adopted that guidance are effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Other amendments are effective upon issuance of this ASU. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s consolidated financial position or results of operations.

In March 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s consolidated financial position or results of operations.

In August 2020, the FASB issued ASU 2020-6, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.  This ASU removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a substantial premium.  This ASU requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments. The amendments in this ASU are effective for public business entities that are not smaller reporting companies, for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.  For all other entities, this ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The guidance may be early adopted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. This Update is not expected to have a significant impact on the Company’s financial statements.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

We have made forward-looking statements in this document, and in documents that we incorporate by reference, that are subject to risks and uncertainties. Forward-looking statements include information concerning possible or expected future results of operations of Citizens Financial Services, Inc., First Citizens Community Bank, First Citizens Insurance Agency, Inc., 1^st Realty of PA LLC or the combined Company. When we use words such as “believes,” “expects,” “anticipates,” or similar expressions, we are making forward-looking statements. For a variety of reasons, actual results could differ materially from those contained in or implied by forward-looking statements.  The Company cautions readers that the following important factors, among others, could in the future affect the Company’s actual results and could cause the Company’s actual results for subsequent periods to differ materially from those expressed in any forward-looking statement:

• The scope, duration and severity of the COVID-19 pandemic and its effects on our business and operations, our customers, including their ability to make timely payments on loans, our service providers, and on the economy and financial markets in general.

• Interest rates could change more rapidly or more significantly than we expect.

• The economy could change significantly in an unexpected way, which would cause the demand for new loans and the ability of borrowers to repay outstanding loans to change in ways that our models do not anticipate.

• The financial markets could suffer a significant disruption, which may have a negative effect on our financial condition and that of our borrowers, and on our ability to raise money by issuing new securities.

• It could take us longer than we anticipate to implement strategic initiatives designed to increase revenues or manage expenses, or we may be unable to implement those initiatives at all.

• We may not be able to successfully integrate businesses we acquire or be able to fully realize the expected financial and other benefits from acquisitions.

• Acquisitions and dispositions of assets could affect us in ways that management has not anticipated.

• We may become subject to new legal obligations or the resolution of litigation may have a negative effect on our financial condition or operating results.

• We may become subject to new and unanticipated accounting, tax, or regulatory practices or requirements.

• We could experience greater loan delinquencies than anticipated, adversely affecting our earnings and financial condition.

• We could experience greater losses than expected due to the ever increasing volume of information theft and fraudulent scams impacting our customers and the banking industry.

• We could lose the services of some or all of our key personnel, which would negatively impact our business because of their business development skills, financial expertise, lending experience, technical expertise and market area knowledge.

• The agricultural economy is subject to extreme swings in both the costs of resources and the prices received from the sale of products, which could negatively impact some of our customers.

• Agricultural customers could be affected by factors outside of their control including adverse weather conditions, loss of crops or livestock due to diseases or other factors, and government policies, regulations and tariffs.

• Loan concentrations in certain industries could negatively impact financial results, if financial results or economic conditions deteriorate.

• A budget impasse in the Commonwealth of Pennsylvania could impact our asset values, liquidity and profitability as a result of either delayed or reduced funding to school districts and municipalities who are customers of the Bank.

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• Companies providing support services related to the exploration and drilling of the natural gas reserves in our market area may be affected by federal, state and local laws and regulations such as restrictions on production, permitting, changes in taxes and environmental protection, which could negatively impact our customers and, as a result, negatively impact our loan and deposit volume and loan quality. Additionally, the activities the companies providing support services related to the exploration and drilling of the natural gas reserves may be dependent on the market price of natural gas.  As a result, decreases in the market price of natural gas could also negatively impact these companies, our customers.

Additional factors that may affect our results are discussed under “Part II – Item 1A – Risk Factors” in this report and in the Company’s 2019 Annual Report on Form 10-K under “Item 1.A/ Risk Factors.”  Except as required by applicable law and regulation, we assume no obligation to update or revise any forward-looking statements after the date on which they are made.

Introduction

The following is management's discussion and analysis of the financial condition and results of operations at the dates and for the periods presented in the accompanying consolidated financial statements for the Company.  Our consolidated financial condition and results of operations consist almost entirely of the Bank’s financial condition and results of operations. Management’s discussion and analysis should be read in conjunction with the preceding financial statements presented under Part I.  The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results you may expect for the full year.

The Company currently engages in the general business of banking throughout our service area of Potter, Tioga, Clinton, Bradford and Centre counties in north central Pennsylvania, Lebanon, Berks, Schuylkill and Lancaster counties in south central Pennsylvania and Allegany County in southern New York and with the recently closed MidCoast acquisition, the Cities of Wilmington and Dover, Delaware. We also have a limited branch office in Union county, Pennsylvania, which primarily serves agricultural and commercial customers in the central Pennsylvania market. We maintain our central office in Mansfield, Pennsylvania. Presently we operate 31 banking facilities, 30 of which operate as bank branches.  In Pennsylvania, the Company has full service offices located in Mansfield, Blossburg, Ulysses, Genesee, Wellsboro, Troy, Sayre, Canton, Gillett, Millerton, LeRaysville, Towanda, Rome, the Mansfield Wal-Mart Super Center, Mill Hall, Schuylkill Haven, Friedensburg, Mt. Aetna, Fredericksburg, Mount Joy, Fivepointville, State College and two branches near the city of Lebanon, Pennsylvania. The Fivepointville branch was opened in the first quarter of 2019. The limited branch office is located in Winfield, Pennsylvania. In New York, our office is in Wellsville. With the merger MidCoast completed in the second quarter, we added three branches in Delaware with two being in the Wilmington market and one in Dover. In the fourth quarter of 2020, we will be opening a full service branch in Kennett Square, Pennsylvania, which is located Chester County and will further serve customers acquired as part of the MidCoast acquisition.

Covid-19 Pandemic Response and Loan Profile

In response to the Covid-19 pandemic, the Company created a payment relief program that included the following:

• Waiver of late fees for March, April and May

• Interest only payment options for consumers and businesses for 60-90 days.

• Deferral of principal payments for consumers and businesses in certain industries for 60-120 days

• Waiver of Company ATM fees for customers utilizing foreign ATMS through May

• Waiver of early withdrawal penalties through May 1, 2020 on CDs

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Through September 30, 2020, we have modified 534 loans totaling $205.1 million, primarily business related loans. As of September 30, 2020, loans with aggregate balances of $20.2 million were still under a modified agreement. Of the $20.2 million modifications outstanding as of September 30, 2020, $6.7 million mature by the end of October 2020, with the remainder maturing by December 31, 2020. Additionally, in accordance with government regulations, we have paused all foreclosure actions in accordance with state mandates.

We also are participating in the Paycheck Protection Program for loans provided under the auspices of the Small Business Administration (SBA). As of September 30, 2020, we had outstanding 591 loans with balances totaling $53.9 million that earn interest at 1% per annum and are expected to generate fee revenue of approximately $2.1 million over the next 24 months. A portion of these loans may be forgiven by the SBA depending on the customers usage of the proceeds beginning in the fourth quarter of 2020.

The Company tracks industry concentrations to identify risks that could lead to additional credit exposure. As a result of the Covid 19 pandemic, the Company has determined that hotels/motels and restaurants represent a higher level of credit risk. At September 30, 2020, the Company has limited loan concentrations to these industries as follows:

• Hotels/Motels - $41.4 million or 3.0% of outstanding loans

• Restaurants - $27.7 million or 2.0% of outstanding loans

• Amusement/Theme parks - $13.8 million, or 1.0% of outstanding loans

Our agricultural relationships are also being strained by the pandemic as demand for certain products has declined and processing plant issues have resulted in strains on our customers as a result of the pandemic. Agricultural lending comprises $351.5 million, or 25.7% of outstanding balances as of September 30, 2020. The federal government has provided assistance to some of our customers through various programs to combat some of the impact of the COVID-19 pandemic.

Risk Management

Risk identification and management are essential elements for the successful management of the Company.  In the normal course of business, the Company is subject to various types of risk, including interest rate, credit, liquidity, reputational and regulatory risk.

Interest rate risk is the sensitivity of net interest income and the market value of financial instruments to the direction and frequency of changes in market interest rates.  Interest rate risk results from various re-pricing frequencies and the maturity structure of the financial instruments owned by the Company.  The Company uses its asset/liability and funds management policy to control and manage interest rate risk.

Credit risk represents the possibility that a customer may not perform in accordance with contractual terms.  Credit risk results from loans with customers and the purchasing of securities.  The Company’s primary credit risk is in the loan portfolio.  The Company manages credit risk by adhering to an established credit policy and through a disciplined evaluation of the adequacy of the allowance for loan losses.  Also, the investment policy limits the amount of credit risk that may be taken in the investment portfolio.

Liquidity risk represents the inability to generate or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers and obligations to depositors.  The Company has established guidelines within its asset/liability and funds management policy to manage liquidity risk.  These guidelines include, among other things, contingent funding alternatives.

Reputational risk, or the risk to our business, earnings, liquidity, and capital from negative public opinion, could result from our actual or alleged conduct in a variety of areas, including legal and regulatory compliance, lending practices, corporate governance, litigation, ethical issues, or inadequate protection of customer information, including fraudulent activity outside the Company’s control. We expend significant resources to comply with regulatory requirements. Failure to comply could result in reputational harm or significant legal or remedial costs. Damage to our reputation could adversely affect our ability to retain and attract new customers, and adversely impact our earnings and liquidity.

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Regulatory and compliance risk represents the possibility that a change in law, regulations or regulatory policy may have a material effect on the business of the Company. We cannot predict what legislation might be enacted or what regulations might be adopted, or if adopted, the effect thereof on our operations.

Competition

The banking industry in the Bank’s service areas continue to be extremely competitive, both among commercial banks and with other financial service providers such as consumer finance companies, thrifts, investment firms, mutual funds, insurance companies, credit unions, agricultural cooperatives and internet entities for loans and deposits. Competition in our north central Pennsylvania market has increased as a result of other financial institutions looking to expand into new markets. With larger population centers in our central and south central markets, as well as the new Delaware operations, we experience more competition to gather deposits and to make loans. Mortgage banking firms, financial companies, financial affiliates of industrial companies, brokerage firms, retirement fund management firms and even government agencies provide additional competition for loans, deposits and other financial services.  The Bank is generally competitive with all competing financial institutions in its service areas with respect to interest rates paid on time and savings deposits, service charges on deposit accounts and interest rates charged on loans.

Trust and Investment Services; Oil and Gas Services

Our Investment and Trust Services Division offers professional trust administration, investment management services, estate planning and administration, and custody of securities.  In addition to traditional trust and investment services offered, we assist our customers through various oil and gas specific leasing matters from lease negotiations to establishing a successful approach to personal wealth management. Assets held by the Company in a fiduciary or agency capacity for its customers are not included in the Consolidated Balance Sheets since such items are not assets of the Company.  Revenues and fees of the Trust Department are reflected in trust income in the Consolidated Statement of Income. As of September 30, 2020 and December 31, 2019, the Trust Department had $137.1 million and $134.3 million of assets under management, respectively.

Our Investment Representatives offer full service brokerage services and financial planning throughout the Bank’s market area. Products such as mutual funds, annuities, health and life insurance are made available through our insurance subsidiary, First Citizens Insurance Agency, Inc.  The assets associated with these products are not included in the Consolidated Balance Sheets since such items are not assets of the Company. Assets owned and invested by customers of the Bank through the Bank’s Investment Representatives increased from $215.4 million at December 31, 2019 to $227.1 million at September 30, 2020. Fee income from the sale of these products is reflected in brokerage and insurance income in the Consolidated Statement of Income. Management believes that there are opportunities to increase non-interest income through these products and services, especially in our central and south central Pennsylvania markets.

Results of Operations

Overview of the Income Statement

The Company had net income of $17,876,000 for the first nine months of 2020 compared to $14,447,000 for last year’s comparable period, an increase of $3,429,000, or 23.7%. Basic earnings per share for the first nine months of 2020 were $4.74, compared to $4.06 last year, representing a 16.8% increase.  Annualized return on assets and return on equity for the nine months of 2020 were 1.43% and 13.85%, respectively, compared with 1.33% and 12.99% for last year’s comparable period.

Net income for the three months ended September 30, 2020 was $8,007,000 compared to $5,196,000 in the comparable 2019 period, an increase of $2,811,000 or 54.1%. Basic earnings per share for the three months ended September 30, 2020 were $2.04, compared to $1.46 last year, representing a 39.7% increase. Annualized return on assets and return on equity for the quarter ended September 30, 2020 was 1.75% and 17.36%, respectively, compared with 1.43% and 13.74% for the same 2019 period.

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Net Interest Income

Net interest income, the most significant component of the Company’s earnings, is the amount by which interest income generated from interest-earning assets exceeds interest expense paid on interest-bearing liabilities.

Net interest income for the first nine months of 2020 was $45,646,000, an increase of $8,496,000, or 22.9%, compared to the same period in 2019.  For the first nine months of 2020 the provision was $1,500,000, an increase of $350,000 over the comparable period in 2019. Consequently, net interest income after the provision for loan losses was $44,146,000 in the first nine months of 2020 compared to $36,000,000 during the first nine months of 2019.

For the three months ended September 30, 2020, net interest income was $16,470,000 compared to $12,899,000, an increase of $3,571,000, or 27.7% over the comparable period in 2019. The provision for loan losses this quarter was $550,000 compared to $400,000 for last year’s third quarter.  Consequently, net interest income after the provision for loan losses was $15,920,000 for the quarter ended September 30, 2020 compared to $12,499,000 in 2019.

The following table sets forth the average balances of, and the interest earned or incurred on, for each principal category of assets, liabilities and stockholders’ equity, the related rates, net interest income and interest rate spread created for the three and nine months ended September 30, 2020 and 2019 on a tax equivalent basis (dollars in thousands):

	Analysis of Average Balances and Interest Rates Nine Months Ended
	September 30, 2020							September 30, 2019
(dollars in thousands)	Average Balance (1) $		Interest $		Average Rate %			Average Balance (1) $		Interest $		Average Rate %
ASSETS
Short-term investments:
Interest-bearing deposits at banks		35,580		23		0.09			9,546		19		0.27
Total short-term investments		35,580		23		0.09			9,546		19		0.27
Interest bearing time deposits at banks		14,266		275		2.57			15,364		292		2.54
Investment securities:
Taxable		185,220		3,487		2.51			189,157		3,968		2.80
Tax-exempt (3)		74,664		1,693		3.02			58,150		1,404		3.22
Total investment securities		259,884		5,180		2.66			247,307		5,372		2.90
Loans (2)(3)(4):
Residential mortgage loans		212,912		8,450		5.30			215,325		8,584		5.33
Construction		25,715		952		4.95			20,576		796		5.17
Commercial Loans		556,133		22,282		5.35			415,287		17,064		5.49
Agricultural Loans		357,498		12,096		4.52			338,266		11,657		4.61
Loans to state & political subdivisions		89,407		2,709		4.05			98,680		2,910		3.94
Other loans		17,878		794		5.93			9,680		562		7.76
Loans, net of discount		1,259,543		47,283		5.01			1,097,814		41,573		5.06
Total interest-earning assets		1,569,273		52,761		4.49			1,370,031		47,256		4.61
Cash and due from banks		7,643							6,243
Bank premises and equipment		17,152							16,120
Other assets		75,238							56,978
Total non-interest earning assets		100,033							79,341
Total assets		1,669,306							1,449,372
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts		374,347		904		0.32			331,084		1,756		0.71
Savings accounts		237,873		387		0.22			216,858		608		0.37
Money market accounts		196,985		810		0.55			163,443		1,520		1.24
Certificates of deposit		333,044		3,178		1.27			282,754		3,143		1.49
Total interest-bearing deposits		1,142,249		5,279		0.62			994,139		7,027		0.95
Other borrowed funds		92,120		960		1.39			108,975		2,216		2.72
Total interest-bearing liabilities		1,234,369		6,239		0.68			1,103,114		9,243		1.12
Demand deposits		246,424							184,159
Other liabilities		16,390							13,817
Total non-interest-bearing liabilities		262,814							197,976
Stockholders' equity		172,123							148,282
Total liabilities & stockholders' equity		1,669,306							1,449,372
Net interest income				46,522							38,013
Net interest spread (5)						3.81	%						3.49	%
Net interest income as a percentage of average interest-earning assets						3.96	%						3.71	%
Ratio of interest-earning assets to interest bearing liabilities						127	%						124	%

(1) Averages are based on daily averages.

(2) Includes loan origination and commitment fees.

(3) Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using a statutory federal income tax rate of 21%.

(4) Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets.

(5) Interest rate spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.

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	Analysis of Average Balances and Interest Rates
	Three Months Ended
	September 30, 2020							September 30, 2019
(dollars in thousands)	Average Balance (1) $		Interest $		Average Rate %			Average Balance (1) $		Interest $		Average Rate %
ASSETS
Short-term investments:
Interest-bearing deposits at banks		67,954		14		0.08			10,047		6		0.24
Total short-term investments		67,954		14		0.08			10,047		6		0.24
Interest bearing time deposits at banks		14,143		92		2.59			15,100		97		2.55
Investment securities:
Taxable		192,641		1,077		2.24			182,113		1,478		3.25
Tax-exempt (3)		84,097		614		2.92			59,464		477		3.22
Total investment securities		276,738		1,691		2.45			241,577		1,955		3.24
Loans (2)(3)(4):
Residential mortgage loans		209,161		2,807		5.34			215,748		2,892		5.32
Construction		29,087		356		4.87			13,149		176		5.31
Commercial Loans		652,380		8,472		5.17			424,662		5,863		5.48
Agricultural Loans		356,164		3,971		4.44			344,897		4,018		4.62
Loans to state & political subdivisions		83,671		872		4.15			96,192		958		3.95
Other loans		30,460		401		5.24			9,566		196		8.13
Loans, net of discount		1,360,923		16,879		4.93			1,104,214		14,103		5.07
Total interest-earning assets		1,719,758		18,676		4.32			1,370,938		16,161		4.68
Cash and due from banks		7,350							5,944
Bank premises and equipment		17,802							15,967
Other assets		90,238							58,869
Total non-interest earning assets		115,390							80,780
Total assets		1,835,148							1,451,718
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts		406,635		211		0.21			335,279		590		0.70
Savings accounts		247,414		96		0.15			221,771		218		0.39
Money market accounts		218,682		215		0.39			167,229		505		1.20
Certificates of deposit		382,551		1,113		1.16			266,385		1,002		1.49
Total interest-bearing deposits		1,255,282		1,635		0.52			990,664		2,315		0.93
Other borrowed funds		98,350		281		1.14			102,622		660		2.56
Total interest-bearing liabilities		1,353,632		1,916		0.56			1,093,286		2,975		1.08
Demand deposits		280,457							194,024
Other liabilities		16,611							13,139
Total non-interest-bearing liabilities		297,068							207,163
Stockholders' equity		184,448							151,269
Total liabilities & stockholders' equity		1,835,148							1,451,718
Net interest income				16,760							13,186
Net interest spread (5)						3.76	%						3.60	%
Net interest income as a percentage of average interest-earning assets						3.88	%						3.82	%
Ratio of interest-earning assets to interest-bearing liabilities						127	%						125	%

(1) Averages are based on daily averages.

(2) Includes loan origination and commitment fees.

(3) Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using a statutory federal income tax rate of 21%.

(4) Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets.

(5) Interest rate spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.

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Tax exempt revenue is shown on a tax-equivalent basis (non-Gaap) for proper comparison using a federal statutory income tax rate of 21% for the three and nine months ended September 30, 2020 and 2019.  For purposes of the comparison, as well as the discussion that follows, this presentation facilitates performance comparisons between taxable and tax-free assets by increasing the tax-free income by an amount equivalent to the Federal income taxes that would have been paid if this income were taxable at the Company’s Federal statutory rate during the corresponding period. The following table represents the adjustment to convert net interest income to net interest income on a fully taxable equivalent basis for the periods ended September 30, 2020 and 2019 (in thousands):

	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
	2020		2019		2020		2019
Interest and dividend income from investment securities and interest bearing deposits at banks (non-tax adjusted)	$	1,668	$	1,959	$	5,122	$	5,388
Tax equivalent adjustment		129		99		356		295
Interest and dividend income from investment securities  and interest bearing deposits at banks (tax equivalent basis)	$	1,797	$	2,058	$	5,478	$	5,683
Interest and fees on loans (non-tax adjusted)	$	16,718	$	13,915	$	46,763	$	41,005
Tax equivalent adjustment		161		188		520		568
Interest and fees on loans (tax equivalent basis)	$	16,879	$	14,103	$	47,283	$	41,573
Total interest income	$	18,386	$	15,874	$	51,885	$	46,393
Total interest expense		1,916		2,975		6,239		9,243
Net interest income		16,470		12,899		45,646		37,150
Total tax equivalent adjustment		290		287		876		863
Net interest income (tax equivalent basis)	$	16,760	$	13,186	$	46,522	$	38,013

The following table shows the tax-equivalent effect of changes in volume and rate on interest income and expense (in thousands):

	Three months ended September 30, 2020 vs 2019 (1)									Nine months ended September 30, 2020 vs 2019 (1)
				Change			Total			Change in			Change			Total
	Change in Volume			in Rate			Change			Volume			in Rate			Change
Interest Income:
Short-term investments:
Interest-bearing deposits at banks	$	9		$	(1	)	$	8		$	5		$	(1	)	$	4
Interest bearing time deposits at banks		(7	)		2			(5	)		(21	)		4			(17	)
Investment securities:
Taxable		92			(493	)		(401	)		(81	)		(400	)		(481	)
Tax-exempt		175			(38	)		137			368			(79	)		289
Total investments		267			(531	)		(264	)		287			(479	)		(192	)
Loans:
Residential mortgage loans		(96	)		11			(85	)		(88	)		(46	)		(134	)
Construction		193			(13	)		180			189			(33	)		156
Commercial Loans		2,920			(311	)		2,609			5,647			(429	)		5,218
Agricultural Loans		142			(189	)		(47	)		655			(216	)		439
Loans to state & political subdivisions		(137	)		51			(86	)		(281	)		80			(201	)
Other loans		245			(40	)		205			321			(89	)		232
Total loans, net of discount		3,267			(491	)		2,776			6,443			(733	)		5,710
Total Interest Income		3,536			(1,021	)		2,515			6,714			(1,209	)		5,505
Interest Expense:
Interest-bearing deposits:
NOW accounts		162			(541	)		(379	)		271			(1,123	)		(852	)
Savings accounts		28			(150	)		(122	)		67			(288	)		(221	)
Money Market accounts		241			(531	)		(290	)		415			(1,125	)		(710	)
Certificates of deposit		232			(121	)		111			164			(129	)		35
Total interest-bearing deposits		663			(1,343	)		(680	)		917			(2,665	)		(1,748	)
Other borrowed funds		(28	)		(351	)		(379	)		(301	)		(955	)		(1,256	)
Total interest expense		635			(1,694	)		(1,059	)		616			(3,620	)		(3,004	)
Net interest income	$	2,901		$	673		$	3,574		$	6,098		$	2,411		$	8,509

(1) The portion of the total change attributable to both volume and rate changes, which can not be separated, has been allocated proportionally to the change due to volume and the change due to rate prior to allocation.

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Tax equivalent net interest income increased from $38,013,000 for the nine month period ended September 30, 2019 to $46,522,000 for the nine month period ended September 30, 2020, an increase of $8,509,000. The tax equivalent net interest margin increased from 3.71% for the first nine months of 2019 to 3.96% for the comparable period in 2020. The increase is primarily caused by the decrease in the cost of interest-bearing liabilities and the increase in average outstanding loans.

Total tax equivalent interest income for the 2020 nine month period increased $5,505,000 as compared to the 2019 nine month period. This increase was a result of an increase of $6,714,000 due to a change in volume as average interest-bearing assets increased $199.2 million. As a result of the low rate interest environment, the yield on average interest earning assets decreased 12 basis point from 4.61% to 4.49%.

Tax equivalent investment income for the nine months ended September 30, 2020 decreased $192,000 over the same period last year. The primary cause of the decrease was a decrease in the yield on taxable investments of 29 basis points.

• The yield on taxable securities decreased 29 basis points from 2.80% to 2.51% as a result of calls of investments that were purchased at a discount in the third quarter of 2019. This resulted in a decrease in investment income of $400,000. The average balance of taxable securities decreased $3.9 million, which resulted in a decrease in investment income of $81,000.

• The average balance of tax-exempt securities increased by $16.5 million, which resulted in an increase in investment income of $368,000. The yield on tax-exempt securities decreased 20 basis points from 3.22% to 3.02%, which corresponds to a decrease in interest income of $79,000. The yield decrease was attributable to higher yielding securities being called and maturing and being replaced by securities that were purchased in a lower rate environment. For a discussion of the Company’s current investment strategy, see the “Financial Condition – Investments”.

Total loan interest income increased $5,710,000 for the nine months ended September 30, 2020 compared to the same period last year, as a result of the MidCoast acquisition that closed in the second quarter and loan growth achieved in 2019 that occurred primarily in our central and south central Pennsylvania markets.

• The average balance of commercial loans increased $140.8 million from a year ago. The growth was primarily attributable to the MidCoast acquisition. This had a positive impact of $5,647,000 on total interest income due to volume. The yield decreased 14 basis points to 5.35%, which decreased loan interest income $429,000.

• Interest income on agricultural loans increased $439,000 from 2019 to 2020. The increase in the average balance of agricultural loans of $19.2 million is primarily attributable to loan growth in our central and south central Pennsylvania markets and the MidCoast acquisition. The increase in the average balance of these loans resulted in an increase in interest income due to volume of $655,000. The yield on agricultural loans decreased 9 basis points to 4.52%, which decreased loan interest income $216,000.

• The average balance of state and political subdivision loans decreased $9.3 million from a year ago as a result of several pay-offs during 2020. This resulted in a decrease of $281,000 on total interest income due to volume.

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• The average balance of other loans increased $8.2 million as a result of an increase in outstanding student loans. This resulted in an increase of $321,000 on total interest income due to volume.

Total interest expense decreased $3,004,000 for the nine months ended September 30, 2020 compared with the comparative period last year primarily as a result of a decrease in the cost of interest-bearing liabilities. Interest expense decreased $3,620,000 due to rate as a result of a decrease in the average rate paid on interest-bearing liabilities from 1.12% to 0.68%. The decrease was driven by the Federal Reserve interest rate cuts in the second half of 2019 and the first quarter of 2020.

• The average balance of interest bearing deposits increased $148.1 million from September 30, 2019 to September 30, 2020. The primary cause of the increase was the MidCoast acquisition completed in the second quarter of 2020. We experienced increases of $43.3 million in NOW accounts, $21.0 million in savings accounts, $33.5 million in money market accounts and $50.3 million in certificates of deposit. The cumulative effect of these volume changes was an increase in interest expense of $917,000.  (see also “Financial Condition – Deposits”). The average rate paid on interest bearing deposits was 0.62% for the first nine months of 2020 and 0.95% for the comparable period in 2019. This resulted in a decrease in interest expense of $2,665,000. The decrease was due to the Federal Reserve cutting interest rates during 2019 and 2020.

• The average balance of other borrowed funds decreased $16.9 million from a year ago. This resulted in a decrease in interest expense of $301,000. There was a decrease in the average rate paid on other borrowed funds from 2.72% to 1.39% due to a decrease in rates as a result of Federal Reserve interest rate decreases in 2019 and 2020 resulting in a decrease in interest expense of $955,000.

Tax equivalent net interest income for the three months ended September 30, 2020 was $16,760,000 which compares to $13,186,000 for the same period last year.  This represents an increase of $3,574,000 or 27.1% and was primarily caused by the MidCoast acquisition completed in the second quarter of 2020.

Total tax equivalent interest income was $18,676,000 for the three month period ended September 30, 2020, compared to $16,161,000 for the comparable period last year, an increase of $2,515,000. As with the nine month period, the increase was driven by the MidCoast acquisition and the associated increase in volume of $3,536,000 due to average interest earning assets increasing $348.8 million offset by a decrease of $1,021,000 as a result of the average yield on interest-earning assets decreasing 36 basis points from 4.68% to 4.32% for the comparable periods.

• Total investment income decreased by $264,000 compared to same period last year.  The primary cause of the decrease was the decrease in the yield on taxable securities, which decreased 1.01% to 2.24%, which corresponds to a decrease of $493,000 in interest income. The decrease in yield is due to security calls made in the third quarter of 2019 that were purchased at a discount. The average balance of investments increased $35.2 million, which corresponds to an increase in investment income of $267,000.

• Total loan interest income increased $2,776,000 compared to the same period last year, with the change corresponding to the year to date change. As a result of the MidCoast acquisition and the PPP loan program, the average loan balance increased by $256.7 million, which corresponds to an increase in loan interest income of $3,267,000.

Total interest expense decreased $1,059,000 for the three months ended September 30, 2020 compared with last year as a result of the average rate on interest-bearing liabilities decreasing 52 basis points from 1.08% to 0.56%, which decreased interest expense $1,694,000.

• The average balance of interest bearing deposits increased $264.6 million for the three month period ended September 30, 2020, as a result of the MidCoast acquisition, which corresponds to a change due to volume of $663,000.  The rate paid on interest bearing deposits was 0.52% for the three months ended September 30, 2020 and 0.93% for the comparable period in 2019. This results in a decrease in interest expense of $1,343,000.

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• The average balance of other borrowed funds decreased $4.3 million from a year ago. This resulted in a decrease in interest expense of $28,000. There was a decrease in the average rate on other borrowed funds from 2.56% to 1.14% as a result of the Federal Reserve interest rate decreases in 2019 and 2020 resulting in a decrease in interest expense of $351,000.

Provision for Loan Losses

For the nine month period ended September 30, 2020, we recorded a provision for loan losses of $1,500,000, which represents an increase of $350,000 from the $1,150,000 provision recorded in the corresponding nine months of last year. The provision was higher in 2020 than 2019 primarily due to the economic environment as a result of the COVID-19 pandemic and the higher levels of unemployment, which offset the decrease in loans when the MidCoast acquired loans and PPP loans guaranteed by the SBA are excluded from 2020 activity. (see “Financial Condition – Allowance for Loan Losses and Credit Quality Risk”).

For the three months ended September 30, 2020, we recorded a provision of $550,000 compared to $400,000 in 2019 with the increase being a result of the economic environment due to the Covid 19 pandemic. (see “Financial Condition – Allowance for Loan Losses and Credit Quality Risk”).

Non-interest Income

The following table shows the breakdown of non-interest income for the three and nine months ended September 30, 2020 and 2019 (dollars in thousands):

	Nine months ended September 30,					Change
	2020			2019		Amount			%
Service charges	$	3,107		$	3,498	$	(391	)		(11.2	)
Trust		542			589		(47	)		(8.0	)
Brokerage and insurance		941			843		98			11.6
Gains on loans sold		1,282			339		943			278.2
Equity security (losses) gains, net		(276	)		70		(346	)		(494.3	)
Available for sale security gains, net		302			8		294			3,675.0
Earnings on bank owned life insurance		514			463		51			11.0
Other		1,046			427		619			145.0
Total	$	7,458		$	6,237	$	1,221			19.6

	Three months ended September 30,					Change
	2020			2019		Amount			%
Service charges	$	1,112		$	1,225	$	(113	)		(9.2	)
Trust		199			148		51			34.5
Brokerage and insurance		352			289		63			21.8
Gains on loans sold		855			176		679			385.8
Equity security gains, net		(33	)		29		(62	)		(213.8	)
Available for sale security gains, net		185			8		177			2,212.5
Earnings on bank owned life insurance		180			158		22			13.9
Other		688			144		544			377.8
Total	$	3,538		$	2,177	$	1,361			62.5

Non-interest income for the nine months ended September 30, 2020 totaled $7,458,000, an increase of $1,221,000 when compared to the same period in 2019.  During the first nine months of 2020, net equity security losses amounted to $276,000 as a result of market losses associated with the Covid-19 pandemic compared to gains of $70,000 last year. During the first nine months of 2020, there were $302,000 of gains from the sale of available for sale securities compared to $8,000 for the comparable period in 2019. We sold $18.6 million of US agency mortgage backed securities for a pre-tax gain of $302,000.

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The increase in gains on loans sold is attributable to a $29.9 million increase in loans sold for the nine months ended September 30, 2020 as a result of the low rate environment, which has significantly increased residential refinancings. The decrease in service charges of $391,000 for the nine months ended September 30, 2020 is attributable to the Bank’s response to the COVID-19  pandemic and a decrease in customer spending as a result of mandatory stay at home orders. The decrease in Trust revenues is due to lower estate settlement fees and asset levels in 2020 compared to 2019. The increase in other income is due to fees on offering back to back swaps to certain customers, which generated fee income of $610,000 in 2020.

For the three month period ended September 30, 2020, the changes experienced from the prior year related available for sale security gains, gains on loans sold, service charges and  other income correspond to the changes experienced for the nine month period. The increase in trust fees was due to estate settlement fees in the third quarter of 2020.

Non-interest Expense

The following tables reflect the breakdown of non-interest expense for the three and nine months ended September 30, 2020 and 2019 (dollars in thousands):

	Nine months ended September 30,				Change
	2020		2019		Amount			%
Salaries and employee benefits	$	17,411	$	15,129	$	2,282			15.1
Occupancy		1,891		1,639		252			15.4
Furniture and equipment		587		501		86			17.2
Professional fees		1,180		1,101		79			7.2
FDIC insurance		341		196		145			74.0
Pennsylvania shares tax		809		825		(16	)		(1.9	)
Amortization of intangibles		162		198		(36	)		(18.2	)
Merger and acquisition		2,179		275		1,904			692.4
Software expenses		817		699		118			16.9
ORE expenses		221		308		(87	)		(28.2	)
Other		4,428		4,102		326			7.9
Total	$	30,026	$	24,973	$	5,053			20.2

	Three months ended September 30,					Change
	2020		2019			Amount			%
Salaries and employee benefits	$	6,102	$	5,096		$	1,006			19.7
Occupancy		714		530			184			34.7
Furniture and equipment		267		165			102			61.8
Professional fees		417		343			74			21.6
FDIC insurance		135		(20	)		155			(775.0	)
Pennsylvania shares tax		275		275			-			-
Amortization of intangibles		57		66			(9	)		(13.6	)
Merger and acquisition		-		275			(275	)	NA
Software expenses		324		244			80			32.8
ORE expenses (recovery)		30		92			(62	)		(67.4	)
Other		1,371		1,348			23			1.7
Total	$	9,692	$	8,414		$	1,278			15.2

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Non-interest expenses increased $5,053,000 for the nine months ended September 30, 2020 compared to the same period in 2019. Salaries and employee benefits increased $2,282,000 or 15.1%. The increase was due to merit increases effective at the beginning of 2020, additional headcount as part of the MidCoast acquisition and increased health care expenses.

The increase in occupancy expenses is due to the additional branches acquired as part of the MidCoast acquisition. The increase in merger and acquisition costs was due to costs associated with the MidCoast acquisition that closed in April 2020. The increase in other expenses is attributable to the partial settlement of the Company’s pension plan due to lump sum distributions taken during the second quarter of 2020. The increase in FDIC insurance was due to credit received from the FDIC in 2019 as the Deposit Insurance Fund exceeded 1.38%.

For the three months ended, September 30, 2020, non-interest expenses increased $1,278,000 when compared to the same period in 2019. The changes are driven by the MidCoast acquisition that closed in the April 2020 resulting in additional headcount and branches. The increase in FDIC insurance was due to credit received from the FDIC in 2019 as the Deposit Insurance Fund exceeded 1.38%.

Provision for Income Taxes

The provision for income taxes was $3,702,000 for the nine month period ended September 30, 2020 compared to $2,817,000 for the same period in 2019. The increase is primarily attributable to the increase in income before the provision for income taxes of $4,314,000 for the comparable periods.  Through management of our municipal loan and bond portfolios, management is focused on minimizing our effective tax rate.  Our effective tax rate was 17.2% and 16.3% for the first nine months of 2020 and 2019, respectively, compared to the statutory rate of 21%.

For the three months ended September 30, 2020, the provision for income taxes was $1,759,000 compared to $1,066,000 for the same period in 2019. The increase is attributable to the increase in income before the provision for income taxes of $3,504,000 for the comparable periods. Our effective tax rate was 18.0% and 17.0% for the three months ended September 30, 2020 and 2019, respectively.

We are invested in four limited partnerships that have established low-income housing projects in our market areas. We anticipate recognizing an aggregate of $317,000 of tax credits over the next 2.25 years, with an additional $35,000 anticipated to be recognized during 2020.

Financial Condition

Total assets were $1.86 billion at September 30, 2020, an increase of $392.0 million from $1.47 billion at December 31, 2019, due primarily to the MidCoast acquisition and PPP loans, as well as deposit growth, which is due to individuals holding more cash due to the pandemic. Cash and cash equivalents increased $56.8 million to $75.3 million. Available for sale securities increased $47.1 million and net loans increased $249.0 million to $1.35 billion at September 30, 2020.  Total deposits increased $341.6 million to $1.55 billion since year-end 2019, while borrowed funds increased $14.5 million to $99.6 million.

Cash and Cash Equivalents

Cash and cash equivalents totaled $75.3 million at September 30, 2020 compared to $18.5 million at December 31, 2019, an increase of $56.8 million. The increase was attributable to deposit growth as customers continue to hold more cash during the pandemic. Management actively measures and evaluates its liquidity position through our Asset–Liability Committee and believes its liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional funding sources including the Bank’s core deposits, Federal Home Loan Bank financing, federal funds lines with correspondent banks, brokered certificates of deposit and the portion of the investment and loan portfolios that mature within one year.  Management expects that these sources of funds will permit us to meet cash obligations and off-balance sheet commitments as they come due.

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Investments

The following table shows the composition of the investment portfolio (including debt and equity securities) as of September 30, 2020 and December 31, 2019 (dollars in thousands):

	September 30, 2020				December 31, 2019
	Amount		%		Amount		%
Debt securities:
U. S. Agency securities	$	80,698		27.9	$	84,863		35.1
U. S. Treasury notes		28,167		9.7		27,661		11.5
Obligations of state & political subdivisions		91,848		31.7		61,455		25.5
Corporate obligations		6,507		2.3		3,328		1.4
Mortgage-backed securities in  government sponsored entities		80,618		27.8		63,399		26.2
Equity securities		1,696		0.6		701		0.3
Total	$	289,534		100.0	$	241,407		100.0

	September 30, 2020/
	December 31, 2019
	Change
	Amount			%
Debt securities:
U. S. Agency securities	$	(4,165	)		(4.9	)
U. S. Treasury notes		506			1.8
Obligations of state & political subdivisions		30,393			49.5
Corporate obligations		3,179			95.5
Mortgage-backed securities in  government sponsored entities		17,219			27.2
Equity securities		995			141.9
Total	$	48,127			19.9

Our investment portfolio increased by $48.1 million, or 19.9%, from December 31, 2019 to September 30, 2020. During 2020, we purchased $21.2 million of U.S. agency obligations, $44.1 million state and political securities, $43.9 million of mortgage backed securities,  $3.2 million corporate securities and $1.4 million of equity securities, which was offset by $14.4 million of principal repayments and $41.1 million of calls and maturities that occurred during the first nine months of 2020. Additionally, with the Federal Reserve purchasing securities in the “To be Announced” mortgage market, we sold $18.6 million with a gain of $302,000. As a result of changes in interest rates, the unrealized gain on available for sale investment portfolio increased $4.4 million. Excluding our short-term investments consisting of monies held primarily at the Federal Reserve for liquidity purposes, our investment portfolio for the nine month period ended September 30, 2020 yielded 2.66%, compared to 2.90% in the comparable period in 2019, on a tax equivalent basis.

The investment strategy for 2020 has been to utilize cashflows from the investment portfolio and deposit inflows to purchase mortgage backed securities in government sponsored entities and obligations of state and political securities. The increase in the investment portfolio was in response to opportunities provided by the Covid-19 pandemic that allowed the Company to purchase high quality municipal securities and mortgage backed securities with relatively high spreads compared to recent periods. We continually monitor interest rate trading ranges and try to focus purchases to times when rates are in the top third of the trading range. The Bank believes its investment strategy has appropriately mitigated its interest rate risk exposure for various rate environments, while providing sufficient cashflows to meet liquidity needs.

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Management continues to monitor the earnings performance and the liquidity of the investment portfolio on a regular basis.  Through active balance sheet management and analysis of the investment portfolio, the Company believes it maintains sufficient liquidity to satisfy depositor withdrawal requirements and various credit needs of its customers.

Loans Held for Sale

Loans held for sale increased $18.5 million to $19.3 million as of September 30, 2020 from December 31, 2019. The increase in loans held for sale was due to the amount of refinancings occurring due o the low rate environment as well as system and personnel constraints due to the COVID-19 pandemic.

Loans

The following table shows the composition of the loan portfolio as of September 30, 2020 and December 31, 2019 (dollars in thousands):

	September 30,				December 31,
	2020				2019
	Amount		%		Amount		%
Real estate:
Residential	$	208,084		15.2	$	217,088		19.5
Commercial		535,456		39.2		342,023		30.7
Agricultural		310,702		22.7		311,464		27.9
Construction		28,656		2.1		15,519		1.4
Consumer		30,625		2.2		9,947		0.8
Other commercial loans		129,731		9.5		69,970		6.3
Other agricultural loans		40,790		3.0		55,112		4.9
State & political subdivision loans		81,835		6.1		94,446		8.5
Total loans		1,365,879		100.0		1,115,569		100.0
Less allowance for loan losses		15,169				13,845
Net loans	$	1,350,710			$	1,101,724

	September 30, 2020/
	December 31, 2019
	Change
	Amount			%
Real estate:
Residential	$	(9,004	)		(4.1	)
Commercial		193,433			56.6
Agricultural		(762	)		(0.2	)
Construction		13,137			84.7
Consumer		20,678			207.9
Other commercial loans		59,761			85.4
Other agricultural loans		(14,322	)		(26.0	)
State & political subdivision loans		(12,611	)		(13.4	)
Total loans	$	250,310			22.4

The Bank’s lending efforts have historically been focused in north central Pennsylvania and southern New York. The acquisition of FNB in 2015 expanded the focus into Lebanon, Lancaster and Schuylkill County markets in south central Pennsylvania. The opening of the Winfield office in 2016 and the acquisition of the State College branch in 2017 has increased our presence in the central Pennsylvania market. The recently closed MidCoast acquisition has expanded our lending market into Wilmington and Dover, Delaware. We originate loans primarily through direct loans to our existing customer base, with new customers generated through the strong relationships our lending teams have with their customers and our lenders expertise in certain areas, as well as by referrals from real estate brokers, building contractors, attorneys, accountants, corporate and advisory board members, existing customers and the Bank’s website.  The Bank offers a variety of loans although historically most of our lending has focused on real estate loans including residential, commercial, agricultural, and construction loans.  All lending is governed by a lending policy that is developed and administered by management and approved by the Board of Directors. As of September 30, 2020, the Company had one industry specific loan concentration to the dairy industry, totaling $143.0 million or 10.5% of total loans. compared to $153.6 million or 13.8% of total loans at December 31, 2019.

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During the first nine months of 2020, the primary driver of growth was the MidCoast acquisition, which increased loans $223.2 million and the PPP program administered by the SBA, which generated loan growth of $53.9 million as of September 30, 2020. Excluding the acquisition and PPP program, loans would have decreased $29.2 million since year-end as a result of three large relationships paying off in the first part of 2020. Commercial and agricultural loan demand is subject to significant competitive pressures, the yield curve, and overall national, regional and local economic conditions.

While the Bank lends to companies that service the exploration for natural gas in our market area, the Bank has not originated any loans to companies performing the actual drilling and exploration activities. Loans made by the Bank are to service industry customers which include trucking companies, stone quarries and other support businesses, favoring customers that had a relationship with the Bank prior to supporting the exploration for natural gas. We also have originated loans to businesses and individuals for restaurants, hotels and apartment rentals that have been developed and expanded to meet the housing and living needs of the gas industry workers. Due to our understanding of the industry and its cyclical nature, the loans made for natural gas-related activities have been originated in accordance with specific policies and procedures for lending to these entities, which include more stringent loan to value thresholds, shortened amortization periods, and expansion of our monitoring of loan concentrations associated with this activity.

Residential real estate loans decreased slightly during the first nine months of 2020. Loan demand for conforming mortgages, which the Company typically sells on the secondary market, increased significantly in 2020 when compared to 2019 as a result of the low rate environment. For loans sold on the secondary market, the Company recognizes fee income for servicing these sold loans, which is included in non-interest income.

In response to the Covid-19 pandemic, the Company has implemented programs to assist our customers. These include allowing customers to make interest only payments for up to 60 days and allowing certain customers in specific industries like hospitality to defer both principal and interest payments for up to 120 days. Customers are eligible to request additional modifications. The Company also agreed to waive late fees for March, April and May of 2020.

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Allowance for Loan Losses

The allowance for loan losses is maintained at a level which in management’s judgment is adequate to absorb probable future loan losses inherent in the loan portfolio at the balance sheet date.  The provision for loan losses is charged against current income.  Loans deemed not collectable are charged-off against the allowance while subsequent recoveries increase the allowance.  The following table presents an analysis of the allowance for loan losses and non-performing loans and assets as of and for the nine months ended September 30, 2020 and for the years ended December 31, 2019, 2018, 2017 and 2016 (dollars in thousands):

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	September 30,			December 31,
	2020			2019			2018			2017			2016
Balance
at beginning of period	$	13,845		$	12,884		$	11,190		$	8,886		$	7,106
Charge-offs:
Real estate:
Residential		-			32			118			107			85
Commercial		221			578			66			41			100
Agricultural		4			-			-			30			-
Consumer		30			49			40			130			100
Other commercial loans		1			38			91			-			55
Other agricultural loans		-			60			50			5			-
Total loans charged-off		256			757			365			313			340
Recoveries:
Real estate:
Residential		-			-			69			-			-
Commercial		37			-			3			11			479
Agricultural		19			-			-			-			-
Consumer		15			33			31			49			88
Other commercial loans		9			10			30			16			33
Other agricultural loans		-			-			1			1			-
Total loans recovered		80			43			134			77			600
Net loans (recovered) charged-off		176			714			231			236			(260	)
Provision charged to expense		1,500			1,675			1,925			2,540			1,520
Balance at end of year	$	15,169		$	13,845		$	12,884		$	11,190		$	8,886
Loans outstanding at end of period	$	1,365,879		$	1,115,569		$	1,081,883		$	1,000,525		$	799,611
Average loans outstanding, net	$	1,259,543		$	1,102,565		$	1,044,250		$	883,355		$	725,881
Non-performing assets:
Non-accruing loans	$	11,711		$	11,536		$	13,724		$	10,171		$	11,454
Accrual loans - 90 days or more past due		1,194			487			68			555			405
Total non-performing loans	$	12,905		$	12,023		$	13,792		$	10,726		$	11,859
Foreclosed assets held for sale		2,726			3,404			601			1,119			1,036
Total non-performing assets	$	15,631		$	15,427		$	14,393		$	11,845		$	12,895
Annualized net charge-offs to average loans		0.02	%		0.06	%		0.02	%		0.03	%		-0.04	%
Allowance to total loans		1.11	%		1.24	%		1.19	%		1.12	%		1.11	%
Allowance to total non-performing loans		117.54	%		115.15	%		93.42	%		104.33	%		74.93	%
Non-performing loans as a percent of loans net of unearned income		0.94	%		1.08	%		1.27	%		1.07	%		1.48	%
Non-performing assets as a percent of loans net of unearned income		1.14	%		1.38	%		1.33	%		1.18	%		1.61	%

Management believes that it uses the best information available when establishing the allowance for loan losses and that the allowance for loan losses is adequate as of September 30, 2020.  However, future adjustments could be required if circumstances differ substantially from assumptions and estimates used in making the initial determination.  A prolonged downturn in the economy, high unemployment rates, significant changes in the value of collateral and delays in receiving financial information from borrowers could result in increased levels of non-performing assets, charge-offs, loan loss provisions and reduction in income. Additionally, bank regulatory agencies periodically examine the Bank’s allowance for loan losses.  The banking agencies could require the recognition of additions to the allowance for loan losses based upon their judgment of information available to them at the time of their examination.

On a monthly basis, problem loans are identified and updated primarily using internally prepared past due reports.  Based on data surrounding the collection process of each identified loan, the loan may be added or deleted from the monthly watch list.  The watch list includes loans graded special mention, substandard, doubtful, and loss, as well as additional loans that management may choose to include.  Watch list loans are continually monitored going forward until satisfactory conditions exist that allow management to upgrade and remove the loan.  In certain cases, loans may be placed on non-accrual status or charged-off based upon management’s evaluation of the borrower’s ability to pay.  All commercial loans, which include commercial real estate, agricultural real estate, state and political subdivision loans and other commercial and agricultural loans, on non-accrual are evaluated quarterly for impairment.

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The allowance for loan losses was $15,169,000 or 1.11% of total loans as of September 30, 2020, as compared to $13,845,000 or 1.24% of loans as of December 31, 2019. The $1,324,000 increase in the allowance during the first nine months of 2020 is the result of a $1,500,000 provision and net charge-offs of $176,000. The decrease as a percent of loans is attributable to the increase in loans as part of the acquisition of MidCoast and the associated purchase accounting adjustments that were applied to the MidCoast loan portfolio. The following table shows the distribution of the allowance for loan losses and the percentage of loans compared to total loans by loan category as of September 30, 2020 and December 31, 2019, 2018, 2017 and 2016 (dollars in thousands):

	September 30,				December 31
	2020				2019				2018				2017				2016
	Amount		%		Amount		%		Amount		%		Amount		%		Amount		%
Real estate loans:
Residential	$	1,219		15.2	$	1,114		19.4	$	1,105		19.9	$	1,049		21.4	$	1,064		25.9
Commercial		5,306		39.2		4,549		30.7		4,115		29.5		3,867		30.8		3,589		31.6
Agricultural		4,806		22.7		5,022		27.9		4,264		26.3		3,143		24.0		1,494		15.5
Construction		85		2.1		43		1.4		58		3.1		23		1.3		47		3.2
Consumer		352		2.2		112		0.9		120		0.9		124		1.0		122		1.4
Other commercial loans		1,230		9.5		1,255		6.3		1,354		6.9		1,272		7.2		1,327		7.3
Other agricultural loans		735		3.0		961		4.9		752		3.9		492		3.8		312		2.9
State & political subdivision loans		514		6.1		536		8.5		762		9.5		816		10.5		833		12.2
Unallocated		922		N/A		253		N/A		354		N/A		404		N/A		98		N/A
Total allowance for loan losses	$	15,169		100.0	$	13,845		100.0	$	12,884		100.0	$	11,190		100.0	$	8,886		100.0

As a result of previous loss experiences and other risk factors utilized in determining the allowance, the Bank’s allocation of the allowance does not directly correspond to the actual balances of the loan portfolio. While commercial and agricultural real estate totaled 61.9% of the loan portfolio, 66.7% of the allowance at that date was assigned to this segment of the loan portfolio as these loans have more inherent credit risk than residential real estate or loans to state and political subdivisions.

The following table identifies amounts of loans contractually past due 30 to 89 days and non-performing loans by loan category, as well as the change from December 31, 2019 to September 30, 2020 in non-performing loans (dollars in thousands). Non-performing loans include accruing loans that are contractually past due 90 days or more and non-accrual loans. Interest does not accrue on non-accrual loans.  Subsequent cash payments received are applied to the outstanding principal balance or recorded as interest income, depending upon management's assessment of its ultimate ability to collect principal and interest.

	September 30, 2020								December 31, 2019
			Non-Performing Loans								Non-Performing Loans
	30 - 89 Days		90 Days						30 - 89 Days		90 Days
	Past Due		Past Due		Non-		Total Non-		Past Due		Past Due		Non-		Total Non-
(in thousands)	Accruing		Accruing		accrual		Performing		Accruing		Accruing		accrual		Performing
Real estate:
Residential	$	1,064	$	622	$	864	$	1,486	$	933	$	2	$	962	$	964
Commercial		1,701		413		5,141		5,554		1,225		-		5,080		5,080
Agricultural		331		147		3,161		3,308		118		299		2,578		2,877
Construction		-		-		-		-		-		-		-		-
Consumer		142		12		-		12		123		2		6		8
Other commercial loans		200		-		1,551		1,551		283		184		1,837		2,021
Other agricultural loans		9		-		994		994		29		-		1,073		1,073
Total nonperforming loans	$	3,447	$	1,194	$	11,711	$	12,905	$	2,711	$	487	$	11,536	$	12,023

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	Change in Non-Performing Loans
	September 30, 2020 /December 31, 2019
(in thousands)	Amount			%
Real estate:
Residential	$	522			54.1
Commercial		474			9.3
Agricultural		431			15.0
Construction		-		NA
Consumer		4			50.0
Other commercial loans		(470	)		(23.3	)
Other agricultural loans		(79	)		(7.4	)
Total nonperforming loans	$	882			7.3

For the nine months ended September 30, 2020, we recorded a provision for loan losses of $1,500,000. Non-performing loans increased $882,000 or 7.3%, from December 31, 2019 to September 30, 2020, primarily due to two residential mortgage customers going past due  by greater than 90 days and an agricultural relationship being placed on non-accrual status. Approximately 57.7% of the Bank’s non-performing loans at September 30, 2020 are associated with the following four customer relationships:

• A commercial loan relationship with $2.2 million outstanding, and additional letters of credit of $2.1 million available, secured by undeveloped land, stone quarries and equipment, was on non-accrual status as of September 30, 2020. The customer is an excavation company and expanded to meet the needs of the natural gas industry for stone for pad and road development. The decreased exploration activities have significantly impacted the cash flows of the customer. During 2019, the Company had the underlying equipment collateral appraised. The 2019 appraisal indicated a decrease in collateral values compared to the appraisal ordered for the loan origination and an appraisal performed in 2017, however, the loan is still considered well secured on a loan to value basis. Management determined that no specific reserve was required as of September 30, 2020.

• An agricultural customer with a total loan relationship of $2.6 million, secured by real estate, equipment and cattle, was on non-accrual status as of September 30, 2020. The customer declared bankruptcy during the fourth quarter of 2018 and developed a workout plan that was approved in the fourth quarter of 2019 and resulted in monthly payments resuming in late 2019. Included within these loans to this customer are $1,022,000 of loans which are subject to Farm Service Agency guarantees. Depressed milk prices and the pandemic have created cash flow difficulties for this customer.  Absent a sizable and sustained increase in milk prices, which is not assured, we will need to rely upon the collateral for repayment of interest and principal. As of September 30, 2020, there was a specific reserve of $214,000 for this relationship.

• A commercial customer with a loan relationship of $1.6 million, secured by commercial real estate, business assets and vehicles, was on non-accrual status as of September 30, 2020. The business expanded into a new market, which has not grown as originally expected and has created cashflow issues. The customer has signed contracts to sell a portion of the collateral, which will be used to pay down a portion of these balances in the fourth quarter of 2020. Management reviewed the collateral and determined that no specific reserve was required as of September 30, 2020.

• An agricultural customer with a total loan relationship of $1.2 million, secured by real estate was on non-accrual status as of September 30, 2020. The COVID-19 pandemic has created cash flow difficulties for this customer.  We expect that we will need to rely upon the collateral for repayment of interest and principal. Management reviewed the collateral and determined that no specific reserve was required as of September 30, 2020.

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Management of the Company believes that the allowance for loan losses as of September 30, 2020 is adequate, which is based on the following factors:

• Four loan relationships comprised 57.7% of the non-performing loan balance, which had approximately $214,000 of specific reserves, as of September 30, 2020.

• The Company has a history of low charge-offs, which have returned to lower levels in the first half of 2020 after being slightly elevated in 2019. Net charge-offs for the first nine months of 2020 were 0.02% and were 0.06% for all of 2019.

Bank Owned Life Insurance

The Company holds bank owned life insurance policies to offset future employee benefit costs. These policies provide the Bank with an asset that generates earnings to partially offset the current costs of benefits, and eventually (at the death of the insureds) provide partial recovery of cash outflows associated with the benefits.  As of September 30, 2020 and  December 31, 2019, the cash surrender value of the life insurance was $32.4 million and $28.1 million, respectively. The change in cash surrender value, net of purchases and amounts acquired through acquisitions, is recognized in the results of operations. As part of the acquisition, the Bank acquired $3.8 million of bank owned life insurance. The amounts recorded as non-interest income totaled $180,000 and $158,000 for the three month periods ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019, $514,000 and $463,000, respectively, was recorded in non-interest income. The Company evaluates annually the risks associated with the life insurance policies, including limits on the amount of coverage and an evaluation of the various carriers’ credit ratings.

The Company agreements that were purchased directly from insurance companies are structured so that any death benefits received from a policy while the insured person is an active employee of the Bank will be split with the beneficiary of the policy.  Under these agreements, the employee’s beneficiary will be entitled to receive 50% of the net amount at risk from the proceeds.  The net amount at risk is the total death benefit payable less the cash surrender value of the policy as of the date of death. The policies acquired as part of the acquisition of FNB provide a fixed split-dollar benefit for the beneficiaries estate, which is dependent on several factors including whether the covered individual was a former Director of First National Bank of Fredericksburg (“FNB”) or a former employee of FNB and their salary level. As of September 30, 2020 and December 31, 2019, included in other liabilities on the Consolidated Balance Sheet was a liability of $678,000 and $684,000, respectively, for the obligation under the split-dollar benefit agreements.

Premises and Equipment

Premises and equipment increased $1.8 million to $17.7 million as of September 30, 2020 from December 31, 2019. As a result of the acquisition, $1.8 million was acquired, which is the primary driver of the increase.

Deposits

The following table shows the composition of deposits as of September 30, 2020 and December 31, 2019 (dollars in thousands):

	September 30,				December 31,
	2020				2019
	Amount		%		Amount		%
Non-interest-bearing deposits	$	276,286		17.8	$	203,793		16.9
NOW accounts		407,837		26.3		340,273		28.1
Savings deposits		248,716		16.0		224,456		18.5
Money market deposit accounts		235,566		15.2		169,865		14.0
Certificates of deposit		384,348		24.7		272,731		22.5
Total	$	1,552,753		100.0	$	1,211,118		100.0

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	September 30, 2020/
	December 31, 2019
	Change
	Amount		%
Non-interest-bearing deposits	$	72,493		35.6
NOW accounts		67,564		19.9
Savings deposits		24,260		10.8
Money market deposit accounts		65,701		38.7
Certificates of deposit		111,617		40.9
Total	$	341,635		28.2

Deposits increased $341.6 million since December 31, 2019. As part of the MidCoast acquisition, the Bank acquired $208.8 million in deposits. A portion of the remaining increase is related to customers who deposited PPP loan proceeds into a deposit account at the Bank. We continue to enhance our cash management services to improve our customer services and to grow deposits through our current customers.

Borrowed Funds

 Borrowed funds were $99.6 million and $85.1 million as of September 30, 2020 and December 31, 2019, respectively. As part of the MidCoast acquisition, $15.5 million of borrowings were acquired. Excluding the acquisition, Overnight advances decreased $24.8 million, while short term advances increased $5.0 million. We borrowed $20.0 million on a long-term basis and subsequent to the acquisition, we repaid $3.0 million of a long term advance acquired as part of the acquisition. There was $1.9 million increase in repurchase agreements. As of September 30, 2020, long-term advances total $53.5 million, while short-term advances total $25.0 million.

During the second quarter, we implemented several interest rate hedging strategies. In April 2020, the Bank entered into two interest rate swap agreements to convert floating-rate debt to fixed rate debt on notional amounts of $15.0 million and $10.0 million. The interest rate swap instruments involves an agreement to receive a floating rate and pay a fixed rate, at specified intervals, calculated on the agreed-upon notional amounts. The differentials paid or received on interest rate swap agreements are recognized as adjustments to interest expense in the period. The interest rate swap agreements were entered into on April 1, 2020 and expire on April 1, 2025 and April 1, 2027. In April 2020, the Company entered into an interest rate swap agreement to convert floating-rate debt to fixed rate debt on a notional amounts of $7.5 million. The interest rate swap instrument involves an agreement to receive a floating rate and pay a fixed rate, at specified intervals, calculated on the agreed-upon notional amount. The differentials paid or received on interest rate swap agreements are recognized as adjustments to interest expense in the period. The interest rate swap agreements were entered into on April 13, 2020 and expire on June 17, 2027. In May, the Bank entered into three two year forward interest rate swaps that will convert floating rate debt to fixed rate debt on notional amounts of $6.0 million each.  The interest rate swap instruments involves an agreement to receive a floating rate and pay a fixed rate, at specified intervals, calculated on the agreed-upon notional amount. The differentials paid or received on interest rate swap agreements are recognized as adjustments to interest expense in the period. The interest rate swap agreements were entered into on May 14, 2020 and expire on May 14, 2027, 2029 and 2032. The fair value of the interest rate swaps at September 30, 2020 was $448,000 and is included within other liabilities on the consolidated balance sheets.

The Company’s current strategy for borrowings is to consider terms and structures to manage interest rate risk and liquidity in a flat to inverted interest rate environment. The Company's daily cash requirements or short-term investments are primarily met by using the financial instruments available through the Federal Home Loan Bank of Pittsburgh.

57

Stockholders’ Equity

We evaluate stockholders’ equity in relation to total assets and the risks associated with those assets.  The greater the capital resource, the more likely a corporation will meet its cash obligations and absorb unforeseen losses.  For these reasons, capital adequacy has been, and will continue to be, of paramount importance to the Company. As such, the Company has implemented policies and procedures to ensure that it has adequate capital levels. As part of this process, we routinely stress test our capital levels and identify potential risk and alternative sources of additional capital should the need arise.

Total stockholders’ equity was $189.1 million at September 30, 2020 compared to $154.8 million at December 31, 2019, an increase of $34,277,000, or 22.2%.  Excluding accumulated other comprehensive income (loss), stockholders’ equity increased $30.8 million, or 19.8%. As part of the MidCoast acquisition, we issued 373,356 shares with a value of $19.2 million based on the Company’s closing stock price of $51.50 per share on April 17, 2020. The Company purchased 40,400 shares of treasury stock at a weighted average cost of $52.48 per share. The Company reissued 6,911 shares to employees and Directors as a reward for years of services and performance at a weighted average cost of $50.78 per share. For the nine months of 2020, the Company had net income of $17.9 million and declared cash dividends of $5.6 million, or $1.46 per share, representing a cash dividend payout ratio of 31.1%.

All of the Company’s debt investment securities are classified as available-for-sale, making this portion of the Company’s balance sheet more sensitive to the changing market value of investments. As a result of changes in the interest rate environment, the defined benefit plan obligations and the interest rate swaps entered into during 2020, accumulated other comprehensive income increased approximately $3.5 million from December 31, 2019.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory-and possibly additional discretionary-actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under U.S. GAAP, regulatory reporting requirements, and regulatory capital standards. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulatory capital standards to ensure capital adequacy require the Bank to maintain minimum amounts and ratios  of total and Tier 1 capital (as defined) to risk-weighted assets (as defined), common equity Tier 1 capital (as defined) to total risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of September 30, 2020 and December 31, 2019, that the Bank meets all capital adequacy requirements to which it was subject at such dates.

As permitted by applicable federal regulation, the Bank has opted to use the community bank leverage ratio (the “CBLR”) framework for determining its capital adequacy.  Under the CBLR framework a qualifying community bank is considered well-capitalized if its leverage ratio (Tier 1 capital divided by average total consolidated assets) exceeds 9%. Following the passage of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act in response to the COVID-19 pandemic, the federal banking regulators revised the CBLR framework as follows: (i) beginning in the second quarter of 2020, a qualifying community bank need only have a leverage ratio of at least 8%, subject to the other qualifying requirements, and (ii) if a qualifying community bank’s leverage ratio falls below 8%, then it will have two calendar quarters to maintain a leverage ratio of 7% or greater.  These revisions under the CARES Act are effective April 23, 2020 and will terminate upon the earlier of the termination of the national emergency related to COVID-19 or December 31, 2020.  Following such termination there is a grace period for returning to the 9% CBLR threshold.  The CBLR will be set at 8% for the remainder of 2020, 8.5% for 2021, and 9% thereafter.  The grace period is also adjusted to account for the graduating increase. As a result, in 2020 and 2021, a qualifying community bank utilizing the grace period must maintain a CBLR of at least 7% and 7.5%, respectively. Thereafter, a qualifying community bank utilizing the grace period must maintain a CBLR of at least 8%. If a qualifying community bank fails to maintain the applicable minimum CBLR during the grace period, or if it is unable to restore compliance with the CBLR within the grace period, then it will revert to the Basel III capital framework and the normal Prompt Corrective Action capital categories will apply. At September 30, 2020, the Bank was considered “well-capitalized” under the CBLR framework, with a leverage ratio of 8.66%.

58

Off-Balance Sheet Activities

Some financial instruments, such as loan commitments, credit lines, and letters of credit, are issued to meet customer financing needs.  The contractual amount of financial instruments with off-balance sheet risk was as follows at September 30, 2020 and December 31, 2019 (in thousands):

	September 30, 2020		December 31, 2019
Commitments to extend credit	$	291,686	$	211,530
Standby letters of credit		19,261		17,857
	$	310,947	$	229,387

We also offer limited overdraft protection as a non-contractual courtesy which is available to demand deposit accounts in good standing. Overdraft charges as a result of ATM withdrawals and one time point of sale (non-recurring) transactions require prior approval of the customer. The non-contractual amount of financial instruments with off-balance sheet risk at September 30, 2020 and December 31, 2019 was $12,176,000 and $11,872,000, respectively. The Company reserves the right to discontinue this service without prior notice.

Liquidity

Liquidity is a measure of the Company's ability to efficiently meet normal cash flow requirements of both borrowers and depositors.  To maintain proper liquidity, we use funds management policies, which include liquidity target ratios, along with our investment policies to assure we can meet our financial obligations to depositors, credit customers and stockholders.  Liquidity is needed to meet depositors' withdrawal demands, extend credit to meet borrowers' needs, provide funds for normal operating expenses and cash dividends, and to fund other capital expenditures.

Cash generated by operating activities, investing activities and financing activities influences liquidity management. Our Company's historical activity in this area can be seen in the Consolidated Statement of Cash Flows.  The most important source of funds is core deposits.  Repayment of principal on outstanding loans and cash flows created from the investment portfolio are also factors in liquidity management.  Other sources of funding include brokered certificates of deposit and the sale of loans or investments, if needed.

The Company's use of funds is shown in the investing activity section of the Consolidated Statement of Cash Flows, where the net loan activity is presented.  Other uses of funds include purchasing stock from the Federal Home Loan Bank (FHLB) of Pittsburgh, as well as capital expenditures.  Capital expenditures (including software purchases), during the first nine months of 2020 were $669,000 compared to $225,000 during the same time period in 2019.

Short-term debt from the FHLB supplements the Bank’s availability of funds.  The Bank achieves liquidity primarily from temporary or short‑term investments in the Federal Reserve and the FHLB.  The Bank had a maximum borrowing capacity at the FHLB of approximately $680.5 million, of which $103.9 million was outstanding, at September 30, 2020. The Bank also had two federal funds lines with third party providers in the total amount of $34.0 million as of September 30, 2020, which are unsecured and undrawn upon. We also have a borrower in custody line with the Federal Reserve Bank of approximately $10.7 million, which also is not drawn upon as of September 30, 2020. The Company continues to evaluate its liquidity needs and as necessary finds additional sources.

59

Citizens Financial Services, Inc. is a separate legal entity from the Bank and must provide for its own liquidity.  In addition to its operating expenses, Citizens Financial Services, Inc. is responsible for paying any dividends declared to its shareholders.  Citizens Financial also has repurchased shares of its common stock.  Citizens Financial Services, Inc.’s primary source of income is dividends received from the Bank.  Both federal and state laws impose restrictions on the ability of the Bank to pay dividends. In particular, the Bank may not, as a state-chartered bank which is a member of the Federal Reserve System, declare a dividend without approval of the Federal Reserve, unless the dividend to be declared by the Bank’s Board of Directors does not exceed the total of:  (i) the Bank’s net profits for the current year to date, plus (ii) its retained net profits for the preceding two current years, less any required transfers to surplus.  The Federal Reserve Board and the FDIC have formal and informal policies which provide that insured banks and bank holding companies should generally pay dividends only out of current operating earnings, with some exceptions.  The Prompt Corrective Action Rules, described above, further limit the ability of banks to pay dividends, because banks which are not classified as well capitalized or adequately capitalized may not pay dividends and no dividend may be paid which would make the Bank undercapitalized after the dividend.  At September 30, 2020, Citizens Financial Services, Inc. (on an unconsolidated basis) had liquid assets of $4.4 million.

Interest Rate and Market Risk Management

The objective of interest rate sensitivity management is to maintain an appropriate balance between the stable growth of income and the risks associated with maximizing income through interest sensitivity imbalances and the market value risk of assets and liabilities.

Because of the nature of our operations, we are not subject to foreign currency exchange or commodity price risk and, because we have no trading portfolio, we are not subject to trading risk. Currently, the Company has equity securities that represent only 0.09% of its total assets and, therefore, equity risk is not significant.

The primary components of interest-sensitive assets include adjustable-rate loans and investments, loan repayments, investment maturities and money market investments.  The primary components of interest-sensitive liabilities include maturing certificates of deposit, IRA certificates of deposit and short-term borrowings.  Savings deposits, NOW accounts and money market investor accounts are considered core deposits and are not short-term interest sensitive (except for the top-tier money market investor accounts, typically help by local governments, which are paid current market interest rates).

      Gap analysis, one of the methods used by us to analyze interest rate risk, does not necessarily show the precise impact of specific interest rate movements on our Company's net interest income because the re-pricing of certain assets and liabilities is discretionary and is subject to competitive and other pressures.  In addition, assets and liabilities within the same period may, in fact, be repaid at different times and at different rate levels.  We have not experienced the kind of earnings volatility that might be indicated from gap analysis.

The Company currently uses a computer simulation model to better measure the impact of interest rate changes on net interest income. We use the model as part of our risk management and asset liability management processes that we believe will effectively identify, measure, and monitor the Company’s risk exposure.  In this analysis, the Company examines the results of movements in interest rates with additional assumptions made concerning prepayment speeds on mortgage loans and mortgage securities.   Shock scenarios, which assume a parallel shift in interest rates and is instantaneous, typically have the greatest impact on net interest income. The following is a rate shock analysis and the impact on net interest income as of September 30, 2020 (dollars in thousands):

			Change In			% Change In
	Prospective One-Year		Prospective			Prospective
Changes in Rates	Net Interest Income		Net Interest Income			Net Interest Income
-100 Shock		57,974		(786	)		(1.34	)
Base		58,760		-			-
+100 Shock		57,749		(1,011	)		(1.72	)
+200 Shock		56,961		(1,799	)		(3.06	)
+300 Shock		56,159		(2,601	)		(4.43	)
+400 Shock		55,160		(3,600	)		(6.13	)

60

The model makes estimates, at each level of interest rate change, regarding cash flows from principal repayments on loans and mortgage backed securities, call activity of other investment securities, and deposit selection, re-pricing and maturity structure.  Because of these assumptions, actual results could differ significantly from these estimates which would result in significant differences in the calculated projected change on net interest income. Additionally, the changes above do not necessarily represent the level of change under which management would undertake specific measures to realign its portfolio in order to reduce the projected level of change. It should be noted that the changes in net interest income noted above are in line with Company policy for interest rate risk.

Item 3-Quantitative and Qualitative Disclosure about Market Risk

In the normal course of conducting business activities, the Company is exposed to market risk, principally interest rate risk, through the operations of its banking subsidiary.  Interest rate risk arises from market driven fluctuations in interest rates that affect cash flows, income, expense and values of financial instruments and was discussed previously in this Form 10-Q.  Management and a committee of the Board of Directors manage interest rate risk (see also “Interest Rate and Market Risk Management”).

Item 4-Control and Procedures

(a) Disclosure Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”).  Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes to Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2020 that have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting.

PART II ‑ OTHER INFORMATION

Item 1 ‑ Legal Proceedings

 Management is not aware of any pending or threatened litigation that would have a material adverse effect on the consolidated financial position of the Company.  Any pending proceedings are ordinary, routine litigation incidental to the business of the Company and its subsidiary.  In addition, no material proceedings are pending or are known to be threatened or contemplated against the Company and its subsidiary by government authorities.

Item 1A – Risk Factors

In addition to the risk factor discussed below and the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1.A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, which could materially affect our business, financial condition or future results. At September 30, 2020, the risk factors of the Company have not changed materially from those reported in our Annual Report on Form 10-K.  However, the risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

61

The COVID-19 pandemic has adversely impacted our business and financial results and that of many of our customers, and the ultimate impact will depend on future developments, which are highly uncertain, cannot be predicted and outside of our control, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID-19 pandemic has created extensive disruptions to the global economy and to the lives of individuals throughout the world. Governments, businesses, and the public are taking unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, fiscal and monetary stimulus, and legislation designed to deliver financial aid and other relief. While the scope, duration, and full effects of COVID-19 are rapidly evolving and not fully known, the pandemic and the efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, impacted market interest rates, increased economic and market uncertainty, and disrupted trade and supply chains.  If these effects continue for a prolonged period or result in sustained economic stress or recession, many of the risk factors identified in our Form 10-K could be exacerbated and the effects of COVID-19 could have a material adverse impact on us in a number of ways as described in more detail below.

Credit Risk – Our risks of timely loan repayment and the value of collateral supporting the loans are affected by the strength of our borrowers’ businesses. Concern about the spread of COVID-19 has caused and is likely to continue to cause business shutdowns, limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, increased unemployment and commercial property vacancy rates, reduced profitability and ability for property owners to make mortgage payments, and overall economic and financial market instability, all of which may cause our customers to be unable to make scheduled loan payments. Hotel and restaurant operators and others in the leisure, hospitality and travel industries and the agricultural industry, among other industries, have been particularly hurt by COVID-19.  If the effects of COVID-19 result in widespread and sustained repayment shortfalls on loans in our portfolio, we could incur significant delinquencies, foreclosures and credit losses, particularly if the available collateral is insufficient to cover our credit exposure. The future effects of COVID-19 on economic activity could negatively affect the collateral values associated with our existing loans, the ability to liquidate the real estate collateral securing our residential and commercial real estate loans, our ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of our lending and services, and the financial condition and credit risk of our customers. Further, in the event of delinquencies, regulatory changes and policies designed to protect borrowers may slow or prevent us from making our business decisions or may result in a delay in our taking certain remediation actions, such as foreclosure. In addition, we have unfunded commitments to extend credit to customers. During a challenging economic environment like now, our customers depend more on our credit commitments and increased borrowings under these commitments could adversely impact our liquidity. Furthermore, in an effort to support our communities during the pandemic, we are participating in the Paycheck Protection Program under the CARES Act whereby loans to small businesses are made and those loans are subject to the regulatory requirements that would require forbearance of loan payments for a specified time or that would limit our ability to pursue all available remedies in the event of a loan default. If the borrower under the PPP loan fails to qualify for loan forgiveness, we are at the heightened risk of holding these loans at unfavorable interest rates as compared to the loans to customers that we would have otherwise extended credit.

62

Strategic Risk – Our success may be affected by a variety of external factors that may affect the price or marketability of our products and services, changes in interest rates that may increase our funding costs, reduced demand for our financial products due to economic conditions and the various response of governmental and nongovernmental authorities. The COVID-19 pandemic has significantly increased economic and demand uncertainty and has led to disruption and volatility in the global capital markets. Furthermore, many of the governmental actions have been directed toward curtailing household and business activity to contain COVID-19. These actions have been rapidly expanding in scope and intensity. For example, in many of our markets, local governments have acted to temporarily close or restrict the operations of most businesses. The future effects of COVID-19 on economic activity could negatively affect the future banking products we provide, including a decline in originating loans.

Operational Risk – Current and future restrictions on our workforce’s access to our facilities could limit our ability to meet customer servicing expectations and have a material adverse effect on our operations. We rely on business processes and branch activity that largely depend on people and technology, including access to information technology systems as well as information, applications, payment systems and other services provided by third parties. In response to COVID-19, we have modified our business practices with a portion of our employees working remotely from their homes to have our operations uninterrupted as much as possible. Further, technology in employees’ homes may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to employees to be more limited or less reliable than in our offices. The continuation of these work-from-home measures also introduces additional operational risk, including increased cybersecurity risk from phishing, malware, and other cybersecurity attacks, all of which could expose us to risks of data or financial loss and could seriously disrupt our operations and the operations of any impacted customers.

Moreover, we rely on many third parties in our business operations, including the appraiser of the real property collateral, vendors that supply essential services such as loan servicers, providers of financial information, systems and analytical tools and providers of electronic payment and settlement systems, and local and federal government agencies, offices, and courthouses. In light of the developing measures responding to the pandemic, many of these entities may limit the availability and access of their services. If the third-party service providers continue to have limited capacities for a prolonged period or if additional limitations or potential disruptions in these services materialize, it may negatively affect our operations.

Interest Rate Risk/Market Value Risk – Our net interest income, lending and investment activities, deposits and profitability could be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID-19. In March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range from 0% to 0.25%, citing concerns about the impact of COVID-19 on financial markets and market stress in the energy sector. A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies. Higher income volatility from changes in interest rates and spreads to benchmark indices could cause a loss of future net interest income and a decrease in prevailing fair market values of our investment securities and other assets. Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.

Because there have been no comparable recent global pandemics that resulted in similar global impact, we do not yet know the full extent of COVID-19’s effects on our business, operations, or the global economy as a whole. Any future development will be highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the effectiveness of our work-from-home arrangements, third party providers’ ability to support our operations, and any actions taken by governmental authorities and other third parties in response to the pandemic. The uncertain future development of this crisis could materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels.

63

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

ISSUER PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares (or units Purchased)		Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans of Programs		Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1)
7/1/20 to 7/31/20		9,200	$	49.75		9,200		11,523
8/1/20 to 8/31/20		3,283	$	48.72		3,283		8,240
9/1/20 to 9/30/20		-	$	0.00		-		8,240
Total		12,483	$	49.48		12,483		8,240

(1) On October 20, 2015, the Company announced that the Board of Directors authorized the Company to repurchase up to an additional 150,000 shares.  The repurchases will be conducted through open-market purchases or privately negotiated transactions and will be made from time to time depending on market conditions and other factors.  No time limit was placed on the duration of the share repurchase program.  Any repurchased shares will be held as treasury stock and will be available for general corporate purposes.

(2) On April 21, 2020, the Company announced that the Board of Directors authorized the Company to repurchase up to an additional 150,000 shares at an aggregate purchase price not to exceed $12.0 million over a period of 36 months. The repurchases will be conducted through open-market purchases or privately negotiated transactions and will be made from time to time depending on market conditions and other factors.  No time limit was placed on the duration of the share repurchase program.  Any repurchased shares will be held as treasury stock and will be available for general corporate purposes.

Item 3 ‑ Defaults Upon Senior Securities

Not applicable.

Item 4 – Mine Safety Disclosure

Not applicable.

Item 5 ‑ Other Information

None

64

Item 6 ‑ Exhibits

(a)  The following documents are filed as a part of this report:

3.1	Articles of Incorporation of Citizens Financial Services, Inc., as amended (1)
3.2	Bylaws of Citizens Financial Services, Inc. (2)
4.1	Form of Common Stock Certificate. (3)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
101	The following materials from the Company’s Quarterly Report on Form 10-Q for the period ended  September 30, 2020, formatted in XBRL (Extensible Business Reporting Language): (i) The Consolidated Balance Sheet (unaudited), (ii) the Consolidated Statement of Income (unaudited), (iii) the Consolidated Statement of Comprehensive Income (unaudited), (iv) the Consolidated Statement of Changes in Stockholders’ Equity, (v) the Consolidated Statement of Cash Flows (unaudited) and (vi) related notes (unaudited).

⁽¹⁾ Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, as filed with the Commission on August 9, 2018.

⁽²⁾ Incorporated by reference to Exhibit 9.01 to the Company’s Current Report on Form 8-K, as filed with the Commission on December 24, 2009.

⁽³⁾   Incorporated by reference to Exhibit 4 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005, as filed with the Commission on March 14, 2006.

65

Signatures

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Citizens Financial Services, Inc.
	(Registrant)
November 5, 2020	/s/ Randall E. Black
	By: Randall E. Black
	President and Chief Executive Officer
	(Principal Executive Officer)
November 5, 2020	/s/ Stephen J. Guillaume
	By: Stephen J. Guillaume
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

66

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

I, Randall E. Black, certify that:

1.            I have reviewed this Form 10-Q of Citizens Financial Services, Inc.;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.           The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 5, 2020	By:  /s/ Randall E. Black
	By:  Randall E. Black
	President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

I, Stephen J. Guillaume, certify that:

1.            I have reviewed this Form 10-Q of Citizens Financial Services, Inc.;

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.            The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.            The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 5, 2020	By:  /s/ Stephen J. Guillaume
	By:  Stephen J. Guillaume
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

Section 1350 Certification

of Chief Executive Officer and Chief Financial Officer

In connection with the Quarterly Report of Citizens Financial Services, Inc. (the "Company") on Form 10-Q (the "Report") for the period ended September 30, 2020 as filed with the Securities and Exchange Commission, the undersigned certify, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered in the Report.

By:  /s/ Randall E. Black

By:  Randall E. Black

President and Chief Executive Officer

(Principal Executive Officer)

Date:  November 5, 2020

By:  /s/ Stephen J. Guillaume

By:  Stephen J. Guillaume

Chief Financial Officer

(Principal Financial and Accounting Officer)

Date:  November 5, 2020

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2020	Oct. 31, 2020
Cover page.
Entity Registrant Name	CITIZENS FINANCIAL SERVICES INC
Entity Central Index Key	0000739421
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Shell Company	false
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		3,921,880
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Document Quarterly Report	true
Document Transition Report	false
Entity File Number	0-13222
Entity Tax Identification Number	23-2265045
Entity Incorporation, State or Country Code	PA
Entity Address, Address Line One	15 South Main Street
Entity Address, City or Town	Mansfield
Entity Address, State or Province	PA
Entity Address, Postal Zip Code	16933
City Area Code	570
Local Phone Number	662‑2121

XML

CONSOLIDATED BALANCE SHEET (UNAUDITED) - USD ($) $ in Thousands		Sep. 30, 2020	Dec. 31, 2019
Cash and due from banks:
Noninterest-bearing		$ 15,922	$ 17,727
Interest-bearing		59,387	793
Total cash and cash equivalents		75,309	18,520
Interest bearing time deposits with other banks		13,758	14,256
Equity securities		1,696	701
Available-for-sale securities		287,838	240,706
Loans held for sale		19,320	815
Loans (net of allowance for loan losses: 2020, $15,169 and 2019, $13,845)		1,350,710	1,101,724
Premises and equipment		17,720	15,933
Accrued interest receivable		6,164	4,555
Goodwill	[1]	31,376	23,296
Bank owned life insurance		32,408	28,128
Other intangibles		1,538	1,346
Other assets		20,507	16,359
TOTAL ASSETS		1,858,344	1,466,339
Deposits:
Noninterest-bearing		276,286	203,793
Interest-bearing		1,276,467	1,007,325
Total deposits		1,552,753	1,211,118
Borrowed funds		99,602	85,117
Accrued interest payable		1,006	1,088
Other liabilities		15,932	14,242
TOTAL LIABILITIES		1,669,293	1,311,565
STOCKHOLDERS' EQUITY:
Preferred Stock $1.00 par value; authorized 3,000,000 shares at September 30, 2020 and December 31, 2019; none issued in 2020 or 2019		0	0
Common stock $1.00 par value; authorized 25,000,000 shares at September 30, 2020 and December 31, 2019; issued 4,350,342 at September 30, 2020 and 3,938,668 at December 31, 2019		4,350	3,939
Additional paid-in capital		75,867	55,089
Retained earnings		121,203	110,800
Accumulated other comprehensive income (loss)		2,865	(629)
Treasury stock, at cost: 428,934 shares at September 30, 2020 and 413,607 shares at December 31, 2019		(15,234)	(14,425)
TOTAL STOCKHOLDERS' EQUITY		189,051	154,774
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$ 1,858,344	$ 1,466,339

[1] Excludes fully amortized intangible assets

XML

CONSOLIDATED BALANCE SHEET (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
ASSETS:
Loans, allowance for loan losses	$ 15,169	$ 13,845
STOCKHOLDERS' EQUITY:
Preferred Stock, par value (in dollars per share)	$ 1.00	$ 1.00
Preferred Stock, authorized (in shares)	3,000,000	3,000,000
Preferred Stock, issued (in shares)	0	0
Common Stock, par value (in dollars per share)	$ 1.00	$ 1.00
Common Stock, authorized (in shares)	25,000,000	25,000,000
Common Stock, issued (in shares)	4,350,342	3,938,668
Treasury stock, shares (in shares)	428,934	413,607

XML

CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
INTEREST INCOME:
Interest and fees on loans	$ 16,718	$ 13,915	$ 46,763	$ 41,005
Interest-bearing deposits with banks	106	103	298	311
Investment securities:
Taxable	979	1,361	3,212	3,597
Nontaxable	485	378	1,337	1,109
Dividends	98	117	275	371
TOTAL INTEREST INCOME	18,386	15,874	51,885	46,393
INTEREST EXPENSE:
Deposits	1,635	2,315	5,279	7,027
Borrowed funds	281	660	960	2,216
TOTAL INTEREST EXPENSE	1,916	2,975	6,239	9,243
NET INTEREST INCOME	16,470	12,899	45,646	37,150
Provision for loan losses	550	400	1,500	1,150
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	15,920	12,499	44,146	36,000
NON-INTEREST INCOME:
Revenue from customers	1,758	1,742	4,851	5,197
Gains on loans sold	855	176	1,282	339
Equity security (losses) gains, net	(33)	29	(276)	70
Available for sale security gains, net	185	8	302	8
Earnings on bank owned life insurance	180	158	514	463
Other	688	144	1,046	427
TOTAL NON-INTEREST INCOME	3,538	2,177	7,458	6,237
NON-INTEREST EXPENSES:
Salaries and employee benefits	6,102	5,096	17,411	15,129
Occupancy	714	530	1,891	1,639
Furniture and equipment	267	165	587	501
Professional fees	417	343	1,180	1,101
FDIC insurance	135	(20)	341	196
Pennsylvania shares tax	275	275	809	825
Amortization of intangibles	57	66	162	198
Merger and acquisition	0	275	2,179	275
Software expenses	324	244	817	699
ORE expenses	30	92	221	308
Other	1,371	1,348	4,428	4,102
TOTAL NON-INTEREST EXPENSES	9,692	8,414	30,026	24,973
Income before provision for income taxes	9,766	6,262	21,578	17,264
Provision for income taxes	1,759	1,066	3,702	2,817
NET INCOME	$ 8,007	$ 5,196	$ 17,876	$ 14,447
PER COMMON SHARE DATA:
Net Income - Basic (in dollars per share)	$ 2.04	$ 1.46	$ 4.74	$ 4.06
Net Income - Diluted (in dollars per share)	2.04	1.46	4.74	4.05
Cash Dividends Paid (in dollars per share)	$ 0.460	$ 0.445	$ 1.460	$ 1.317
Number of shares used in computation - basic (in shares)	3,918,438	3,553,996	3,769,705	3,560,695
Number of shares used in computation - diluted (in shares)	3,918,438	3,553,996	3,771,730	3,562,975
Service Charges [Member]
NON-INTEREST INCOME:
Revenue from customers	$ 1,112	$ 1,225	$ 3,107	$ 3,498
Trust [Member]
NON-INTEREST INCOME:
Revenue from customers	199	148	542	589
Brokerage and Insurance [Member]
NON-INTEREST INCOME:
Revenue from customers	$ 352	$ 289	$ 941	$ 843

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) [Abstract]
Net income	$ 8,007	$ 5,196	$ 17,876	$ 14,447
Other comprehensive income (loss):
Change in unrealized gains (losses) on available for sale securities	(44)	9	4,690	4,425
Income tax effect	9	(2)	(985)	(930)
Change in unrecognized pension cost	59	60	482	181
Income tax effect	(12)	(13)	(101)	(38)
Change in unrealized loss on interest rate swaps	118	0	(448)	0
Income tax effect	(25)	0	95	0
Less: Reclassification adjustment for investment security gains included in net income	(185)	(8)	(302)	(8)
Income tax effect	38	2	63	2
Other comprehensive income (loss), net of tax	(42)	48	3,494	3,632
Comprehensive income	$ 7,965	$ 5,244	$ 21,370	$ 18,079

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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Treasury Stock [Member]	Total
Balance at Dec. 31, 2018	$ 3,904	$ 53,099	$ 99,727	$ (3,921)	$ (13,580)	$ 139,229
Balance (in shares) at Dec. 31, 2018	3,904,212
Comprehensive income:
Net income			14,447			14,447
Net other comprehensive income (loss)				3,632		3,632
Stock dividend	$ 35	2,067
Stock dividend			(2,102)			0
Stock dividend (in shares)	34,456
Purchase of treasury stock					(1,236)	(1,236)
Restricted stock, executive, Board of Director awards and ESOP		(300)			415	115
Restricted stock vesting		221				221
Forfeited restricted stock		9			(9)	0
Cash dividends			(4,730)			(4,730)
Balance at Sep. 30, 2019	$ 3,939	55,096	107,342	(289)	(14,410)	151,678
Balance (in shares) at Sep. 30, 2019	3,938,668
Balance at Jun. 30, 2019	$ 3,939	55,096	103,733	(337)	(14,410)	148,021
Balance (in shares) at Jun. 30, 2019	3,938,668
Comprehensive income:
Net income			5,196			5,196
Net other comprehensive income (loss)				48		48
Cash dividends			(1,587)			(1,587)
Balance at Sep. 30, 2019	$ 3,939	55,096	107,342	(289)	(14,410)	151,678
Balance (in shares) at Sep. 30, 2019	3,938,668
Balance at Dec. 31, 2019	$ 3,939	55,089	110,800	(629)	(14,425)	154,774
Balance (in shares) at Dec. 31, 2019	3,938,668
Comprehensive income:
Net income			17,876			17,876
Net other comprehensive income (loss)				3,494		3,494
Stock dividend	$ 38	1,878
Stock dividend			(1,916)			0
Stock dividend (in shares)	38,318
Issuance of Common stock	$ 373	18,854				19,227
Issuance of Common stock (in shares)	373,356
Purchase of treasury stock					(2,120)	(2,120)
Restricted stock, executive, Board of Director awards and ESOP		(236)			491	255
Restricted stock vesting		281				281
Cash dividend reinvestment paid from treasury stock		1	0		820	821
Cash dividends			(5,557)			(5,557)
Balance at Sep. 30, 2020	$ 4,350	75,867	121,203	2,865	(15,234)	189,051
Balance (in shares) at Sep. 30, 2020	4,350,342
Balance at Jun. 30, 2020	$ 4,350	75,863	115,000	2,907	(15,025)	183,095
Balance (in shares) at Jun. 30, 2020	4,350,342
Comprehensive income:
Net income			8,007			8,007
Net other comprehensive income (loss)				(42)		(42)
Purchase of treasury stock					(618)	(618)
Restricted stock, executive, Board of Director awards and ESOP		(3)			153	150
Cash dividend reinvestment paid from treasury stock		7			256	263
Cash dividends			(1,804)			(1,804)
Balance at Sep. 30, 2020	$ 4,350	$ 75,867	$ 121,203	$ 2,865	$ (15,234)	$ 189,051
Balance (in shares) at Sep. 30, 2020	4,350,342

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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (Parenthetical) - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Consolidated Statement of Changes in Stockholders' Equity [Abstract]
Purchase of treasury stock (in shares)	12,483		40,400	20,620
Restricted stock (in shares)	3,018		9,669
Cash dividend reinvestment paid from treasury stock (in shares)	5,128		15,404
Cash dividends (in dollars per share)	$ 0.460	$ 0.445	$ 1.460	$ 1.317

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CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) - USD ($) $ in Thousands		9 Months Ended
		Sep. 30, 2020	Sep. 30, 2019	Apr. 17, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$ 17,876	$ 14,447
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Provision for loan losses		1,500	1,150
Depreciation and amortization		(1,648)	357
Amortization and accretion of investment securities		648	129
Deferred income taxes		359	420
Investment securities losses (gains), net		(26)	(78)
Earnings on bank owned life insurance		(514)	(463)
Vesting of restricted stock		281	221
Originations of loans held for sale		(62,677)	(15,261)
Proceeds from sales of loans held for sale		45,113	15,183
Realized gains on loans sold		(1,282)	(339)
Increase in accrued interest receivable		(1,023)	(24)
Increase (decrease) in accrued interest payable		(246)	(24)
Other, net		(729)	103
Net cash (used in) provided by operating activities		(2,368)	15,821
Available-for-sale securities:
Proceeds from sales		18,621	5,508
Proceeds from maturity and principal repayments		55,455	51,028
Purchase of securities		(117,166)	(59,788)
Purchase of equity securities		(1,439)	(64)
Proceeds from sale of equity securities		168	0
Purchase of interest bearing time deposits with other banks		(350)	(248)
Proceeds from matured interest bearing time deposits with other banks		848	1,490
Proceeds from redemption of regulatory stock		7,923	7,784
Purchase of regulatory stock		(6,424)	(9,127)
Net increase in loans		(24,741)	(36,653)
Purchase of premises and equipment		(760)	(225)
Proceeds from sale of premises and equipment		0	7
Proceeds from sale of foreclosed assets held for sale		669	813
Acquisition, net of cash paid		1,023	0
Net cash used in investing activities		(66,173)	(39,475)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits		132,807	14,148
Proceeds from long-term borrowings		20,000	10,000
Repayments of long-term borrowings		(3,000)	(3,123)
Net (decrease) increase in short-term borrowed funds		(17,876)	11,769
Purchase of treasury stock		(2,120)	(1,236)
Reissuance of treasury stock		255	115
Dividends paid		(4,736)	(4,730)
Net cash provided by financing activities		125,330	26,943
Net increase in cash and cash equivalents		56,789	3,289
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		18,520	16,797
CASH AND CASH EQUIVALENTS AT END OF PERIOD		75,309	20,086
Supplemental Disclosures of Cash Flow Information:
Interest paid		6,321	9,267
Income taxes paid		3,500	2,450
Loans transferred to foreclosed property		32	3,728
Right of use asset and liability		636	$ 1,454
Non-cash assets acquired
Goodwill	[1]	$ 31,376
MidCoast Community Bancorp, Inc [Member]
Non-cash assets acquired
Available-for-sale securities				$ 0
Loans				223,235
Premises and equipment				1,787
Accrued interest receivable				586
Bank owned life insurance				3,766
Intangibles				157
Deferred tax asset				3,402
Other assets				2,878
Goodwill				8,080
Total Non-cash assets acquired				243,891
Liabilities assumed
Noninterest-bearing deposits				38,694
Interest-bearing deposits				170,132
Accrued interest payable				164
Borrowed funds				15,497
Other liabilities				1,198
Total liabilities assumed				225,685
Net non-cash liabilities acquired				18,206
Cash and cash equivalents acquired				$ 8,637

[1] Excludes fully amortized intangible assets

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Basis of Presentation

9 Months Ended

Sep. 30, 2020

Basis of Presentation [Abstract]

Basis of Presentation

Note 1 - Basis of Presentation

Citizens Financial Services, Inc. (individually and collectively with its direct and indirect subsidiaries, the “Company”) is a Pennsylvania corporation and the holding company of its wholly owned subsidiary, First Citizens Community Bank (the “Bank”), and of the Bank’s wholly owned subsidiaries, First Citizens Insurance Agency, Inc. (“First Citizens Insurance”) and 1^st Realty of PA LLC (“Realty”). The Bank is the wholly owned subsidiary of CZFS Acquisition Company, LLC, which is a wholly owned subsidiary of the Company. Realty was formed in March of 2019 to manage and sell properties acquired by the Bank in the settlement of a bankruptcy filing with a commercial customer.

The accompanying consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”) and in conformity with U.S. generally accepted accounting principles.  Because this report is based on an interim period, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted.  Certain of the prior year amounts have been reclassified to conform with the current year presentation.  Such reclassifications had no effect on net income or stockholders’ equity.  All material inter‑company balances and transactions have been eliminated in consolidation.

In the opinion of management of the Company, the accompanying interim financial statements at September 30, 2020 and for the periods ended September 30, 2020 and 2019 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations at the dates and for the periods presented. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and of revenues and expenses for the periods covered by the Consolidated Statement of Income. The financial performance reported for the Company for the three and nine month periods ended September 30, 2020 is not necessarily indicative of the results to be expected for the full year.  This information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

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Revenue Recognition

9 Months Ended

Sep. 30, 2020

Revenue Recognition [Abstract]

Revenue Recognition

Note 2 – Revenue Recognition

In accordance with ASC 606, Management determined that the primary sources of revenue emanating from interest and dividend income on loans and investments along with noninterest revenue resulting from investment security gains, loan servicing, gains on loans sold and earnings on bank owned life insurances are not within the scope of ASC 606. The main types of noninterest income within the scope of the standard are as follows:

• Service charges on deposit accounts – The Company has contracts with its deposit customers where fees are charged if certain parameters are not met. These agreements can be cancelled at any time by either the Company or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. The Company also has transaction fees related to specific transactions or activities resulting from a customer request or activity that include overdraft fees, online banking fees, interchange fees, ATM fees and other transaction fees. All of these fees are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time upon the completion of the requested service/transaction.

• Trust fees – Typical contracts for trust services are based on a fixed percentage of the assets earned ratably over a defined period and billed on a monthly basis. Fees charged to customers’ accounts are recognized as revenue over the period during which the Company fulfills its performance obligation under the contract (i.e., holding client asset in a managed fiduciary trust account). For these accounts, the performance obligation of the Company is typically satisfied by holding and managing the customer’s assets over time. Other fees related to specific customer requests are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time, upon completion of the requested service/transaction.

• Gains and losses on sale of other real estate owned – Gains and losses are recognized at the completion of the property sale when the buyer obtains control of the real estate and all of the performance obligations of the Company have been satisfied. Evidence of the buyer obtaining control of the asset include transfer of the property title, physical possession of the asset, and the buyer obtaining control of the risks and rewards related to the asset. In situations where the Company agrees to provide financing to facilitate the sale, additional analysis is performed to ensure that the contract for sale identifies the buyer and seller, the asset to be transferred, payment terms, and that the contract has a true commercial substance and that collection of amounts due from the buyer are reasonable. In situations where financing terms are not reflective of current market terms, the transaction price is discounted impacting the gain/loss and the carrying value of the asset.

• Brokerage and insurance – Fees includes commissions from the sales of investments and insurance products recognized on a trade date basis as the performance obligation is satisfied at the point in time in which the trade is processed. Additional fees are based on a percentage of the market value of customer accounts and billed on a monthly or quarterly basis. The Company’s performance obligation under the contracts with certain customers is generally satisfied through the passage of time as the Company monitors and manages the assets in the customer’s portfolio and is not dependent on certain return or performance level of the customer’s portfolio. Fees for these services are billed monthly and are recorded as revenue at the end of the month for which the wealth management service has been performed. Other performance obligations (such as the delivery of account statements to customers) are generally considered immaterial to the overall transaction price.

The following table depicts the disaggregation of revenue derived from contracts with customers to depict the nature, amount, timing, and uncertainty of revenue and cash flows for the three and nine months ended September 30, 2020 and 2019 (in thousands). All revenue in the table below relates to goods and services transferred at a point in time.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Revenue stream	2020		2019		2020		2019
Service charges on deposit accounts
Overdraft fees	$	282		405	$	847	$	1,132
Statement fees		50		52		156		153
Interchange revenue		616		589		1,693		1,724
ATM income		99		108		241		300
Other service charges		65		71		170		189
Total Service Charges		1,112		1,225		3,107		3,498
Trust		199		148		542		589
Brokerage and insurance		352		289		941		843
Other		95		80		261		267
Total	$	1,758	$	1,742	$	4,851	$	5,197

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Earnings per Share

9 Months Ended

Sep. 30, 2020

Earnings per Share [Abstract]

Earnings per Share

Note 3 - Earnings per Share

The following table sets forth the computation of earnings per share.

	Three months ended				Nine months ended
	September 30,				September 30,
	2020		2019		2020		2019
Net income applicable to common stock	$	8,007	$	5,196	$	17,876	$	14,447
Basic earnings per share computation
Weighted average common shares outstanding		3,918,438		3,553,996		3,769,705		3,560,695
Earnings per share - basic	$	2.04	$	1.46	$	4.74	$	4.06
Diluted earnings per share computation
Weighted average common shares outstanding for basic earnings per share		3,918,438		3,553,996		3,769,705		3,560,695
Add: Dilutive effects of restricted stock		-		-		2,025		2,280
Weighted average common shares outstanding for dilutive earnings per share		3,918,438		3,553,996		3,771,730		3,562,975
Earnings per share - diluted	$	2.04	$	1.46	$	4.74	$	4.05

For the three months ended September 30, 2020 and 2019, there were 9,480 and 9,013 shares, respectively, related to the restricted stock plan that were excluded from the diluted earnings per share calculations since they were anti-dilutive. These anti-dilutive shares had per share prices ranging from $51.14-$62.93 for the three month period ended September 30, 2020 and per share prices ranging from $50.65-$62.93 for the three month period ended September 30, 2019. For the nine months ended September 30, 2020 and 2019, 5,347 and 4,453 shares, respectively, related to the restricted stock plan were excluded from the diluted earnings per share calculations since they were anti-dilutive. These anti-dilutive shares had prices ranging from $58.37-$62.93 for the nine month period ended September 30, 2020 and prices ranging from $50.65-$62.93 for the nine month period ended September 30, 2019.

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Investments

9 Months Ended

Sep. 30, 2020

Investments [Abstract]

Investments

Note 4 – Investments

The amortized cost, gross unrealized gains and losses, and fair value of investment securities at September 30, 2020 and December 31, 2019 were as follows (in thousands):

September 30, 2020	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
U.S. agency securities	$	78,095	$	2,647	$	(44	)	$	80,698
U.S. treasury securities		27,430		737		-			28,167
Obligations of state and political subdivisions		89,678		2,297		(127	)		91,848
Corporate obligations		6,423		84		-			6,507
Mortgage-backed securities in government sponsored entities		78,925		1,829		(136	)		80,618
Total available-for-sale securities	$	280,551	$	7,594	$	(307	)	$	287,838
December 31, 2019
Available-for-sale securities:
U.S. agency securities	$	83,410	$	1,523	$	(70	)	$	84,863
U.S. treasury securities		27,394		267		-			27,661
Obligations of state and political subdivisions		60,667		865		(77	)		61,455
Corporate obligations		3,250		78		-			3,328
Mortgage-backed securities in government sponsored entities		63,086		468		(155	)		63,399
Total available-for-sale securities	$	237,807	$	3,201	$	(302	)	$	240,706

The following table shows the Company’s gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time, which individual securities have been in a continuous unrealized loss position, at September 30, 2020 and December 31, 2019 (in thousands). As of September 30, 2020, the Company owned 30 securities whose fair value was less than their cost basis.

September 30, 2020	Less than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. agency securities	$	6,979	$	(44	)	$	-	$	-		$	6,979	$	(44	)
Obligations of state and  political subdivisions		11,257		(127	)		-		-			11,257		(127	)
Mortgage-backed securities in government sponsored entities		8,884		(98	)		5,779		(38	)		14,663		(136	)
Total securities	$	27,120	$	(269	)	$	5,779	$	(38	)	$	32,899	$	(307	)
December 31, 2019
U.S. agency securities	$	14,587	$	(63	)	$	13,094	$	(7	)	$	27,681	$	(70	)
Obligations of states and   political subdivisions		7,508		(75	)		1,507		(2	)		9,015		(77	)
Mortgage-backed securities in government sponsored entities		27,737		(97	)		9,559		(58	)		37,296		(155	)
Total securities	$	49,832	$	(235	)	$	24,160	$	(67	)	$	73,992	$	(302	)

As of September 30, 2020 and December 31, 2019, the Company’s investment securities portfolio contained unrealized losses on agency securities issued or backed by the full faith and credit of the United States government or are generally viewed as having the implied guarantee of the U.S. government, obligations of states and political subdivisions and mortgage backed securities issued by government sponsored entities. For fixed maturity investments management considers whether the present value of cash flows expected to be collected are less than the security’s amortized cost basis (the difference defined as the credit loss), the magnitude and duration of the decline, the reasons underlying the decline and the Company’s intent to sell the security or whether it is more likely than not that the Company would be required to sell the security before its anticipated recovery in fair value, to determine whether the loss in value is other than temporary. Once a decline in value is determined to be other than temporary, if the Company does not intend to sell the security, and it is more likely than not that it will not be required to sell the security before recovery of the security’s amortized cost basis, the charge to earnings is limited to the amount of credit loss. Any remaining difference between fair value and amortized cost (the difference defined as the non-credit portion) is recognized in other comprehensive income, net of applicable taxes. Otherwise, the entire difference between fair value and amortized cost is charged to earnings. The Company has concluded that any impairment of its investment securities portfolio outlined in the above table is not other than temporary and is the result of interest rate changes, sector credit rating changes, or issuer-specific rating changes that are not expected to result in the non-collection of principal and interest during the period.

Proceeds from sales of securities available-for-sale for the nine months ended September 30, 2020 and 2019 were $18,621,000 and $5,508,000, respectively. Proceeds from sales of securities available-for-sale for the three months ended September 30, 2020 and 2019 were $13,145,000 and $5,508,000, respectively. The gross gains and losses were as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2020			2019			2020			2019
Gross gains on available for sale securities	$	192		$	9		$	309		$	9
Gross losses on available for sale securities		(7	)		(1	)		(7	)		(1	)
Net gains	$	185		$	8		$	302		$	8

The following table presents the net gains (losses) on the Company’s equity investments recognized in earnings during the three and nine month periods ended September 30, 2020 and 2019, and the portion of unrealized gains for the period that relates to equity investments held at September 30, 2020 and 2019 (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
Equity securities	2020			2019		2020			2019
Net gains (losses) recognized in equity securities during the period	$	(33	)	$	29	$	(276	)	$	70
Less: Net gains realized on the sale of equity securities during the period		68			-		68			-
Net unrealized gains (losses)	$	(101	)	$	29	$	(344	)	$	70

Investment securities with an approximate carrying value of $250.2 million and $209.1 million at September 30, 2020 and December 31, 2019, respectively, were pledged to secure public funds, certain other deposits and borrowing lines.

Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.   The amortized cost and fair value of debt securities (excludes equity securities) at September 30, 2020, by contractual maturity, are shown below (in thousands):

	Amortized Cost		Fair Value
Available-for-sale debt securities:
Due in one year or less	$	19,293	$	19,530
Due after one year through five years		65,451		68,561
Due after five years through ten years		58,962		60,506
Due after ten years		136,845		139,241
Total	$	280,551	$	287,838

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Loans

9 Months Ended

Sep. 30, 2020

Loans [Abstract]

Loans

Note 5 – Loans

The Company grants loans primarily to customers throughout north central, central and south central Pennsylvania and the southern tier of New York. The recently completed MidCoast acquisition has expanded our lending market into Wilmington and Dover, Delaware.   Although the Company had a diversified loan portfolio at September 30, 2020 and December 31, 2019, a substantial portion of its debtors’ ability to honor their contracts is dependent on the economic conditions within these regions. The following table summarizes the primary segments of the loan portfolio and how those segments are analyzed within the allowance for loan losses as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	208,084	$	1,041	$	20	$	207,023
Commercial		535,456		9,465		3,306		522,685
Agricultural		310,702		4,398		1,722		304,582
Construction		28,656		-		-		28,656
Consumer		30,625		15		-		30,610
Other commercial loans		129,731		1,603		-		128,128
Other agricultural loans		40,790		1,246		306		39,238
State and political subdivision loans		81,835		-		-		81,835
Total		1,365,879		17,768		5,354		1,342,757
Allowance for loan losses		15,169		791		-		14,378
Net loans	$	1,350,710	$	16,977	$	5,354	$	1,328,379

December 31, 2019	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	217,088	$	1,166	$	23	$	215,899
Commercial		342,023		11,537		1,210		329,276
Agricultural		311,464		3,782		-		307,682
Construction		15,519		-		-		15,519
Consumer		9,947		4		-		9,943
Other commercial loans		69,970		1,902		49		68,019
Other agricultural loans		55,112		1,281		-		53,831
State and political subdivision loans		94,446		-		-		94,446
Total		1,115,569		19,672		1,282		1,094,615
Allowance for loan losses		13,845		735		-		13,110
Net loans	$	1,101,724	$	18,937	$	1,282	$	1,081,505

During 2020 the Company participated in the Paycheck Protection Program (“PPP”), administered directly by the U.S. SBA. The PPP provides loans to small businesses who were affected by economic conditions as a result of COVID-19 to provide cash-flow assistance to employers who maintain their payroll (including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt during the COVID-19 emergency. As of September 30, 2020, the Company had outstanding principal balances of $53.9 million. The PPP loans are fully guaranteed by the SBA and may be eligible for forgiveness by the SBA to the extent that the proceeds are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan is made as long as certain conditions are met regarding employee retention and compensation levels. PPP loans deemed eligible for forgiveness by the SBA will be repaid by the SBA to the Company. PPP loans are included in the other commercial loan category.

In accordance with the SBA terms and conditions on these PPP loans, the Company received approximately $2.1 million in fees associated with the processing of these loans. Upon funding of the loan, these fees were deferred and will be amortized over the life of the loan as an adjustment to yield in accordance with FASB ASC 310-20-25-2.

The Company evaluated whether loans acquired as part of the MidCoast acquisition were within the scope of ASC 310-30, Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased credit-impaired loans (“PCI”) are loans that have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. There were no material increases or decreases in the expected cash flows of these loans between April 17, 2020 (the “acquisition date”) and September 30, 2020. The fair value of purchased credit-impaired loans, on the acquisition date, was determined, primarily based on the fair value of loan collateral. The carrying value of purchased loans acquired with deteriorated credit quality as a result of the MidCoast acquisition was $4,654,000 at September 30, 2020.

On the acquisition date, the preliminary estimate of the unpaid principal balance for all loans evidencing credit impairment acquired in the MidCoast acquisition was $8,005,000 and the estimated fair value of the loans was $4,869,000. Total contractually required payments on these loans, including interest, at the acquisition date was $8,801,000. However, the Company’s preliminary estimate of expected cash flows was $5,835,000 at the acquisition date. At the acquisition date, the Company established a credit risk related non-accretable discount (a discount representing amounts which are not expected to be collected from the customer nor liquidation of collateral) of $2,966,000 relating to these impaired loans, reflected in the recorded net fair value. Such amount is reflected as a non-accretable fair value adjustment to loans. The Company further estimated the timing and amount of expected cash flows in excess of the estimated fair value and established an accretable discount of $966,000 on the acquisition date relating to these impaired loans.

The table below presents the components of the purchase accounting adjustments related to the purchased impaired loans acquired in the MidCoast Acquisition as of April 17, 2020 (in thousands):

	April 17, 2020
Contractually required principal and interest at acquisition	$	8,801
Non-accretable  discount		(2,966	)
Expected cash flows		5,835
Accretable discount	$	(966	)
Estimated fair value	$	4,869

Changes in the accretable yield for PCI loans were as follows for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands):

	Three months ended September 30,						Nine months ended September 30,
	2020			2019			2020			2019
Balance at beginning of period	$	987		$	100		$	89		$	104
Acquisition of Midcoast		-			-			966			-
Accretion		(100	)		(10	)		(168	)		(14	)
Balance at end of period	$	887		$	90		$	887		$	90

The following table presents additional information regarding loans acquired with specific evidence of deterioration in credit quality under ASC 310-30 (in thousands):

	September 30, 2020		December 31, 2019
Outstanding balance	$	9,479	$	4,072
Carrying amount		5,354		1,282

The segments of the Company’s loan portfolio are disaggregated into classes to a level that allows management to monitor risk and performance. Residential real estate mortgages consist primarily of 15 to 30 year first mortgages on residential real estate, while residential real estate home equity loans are consumer purpose installment loans or lines of credit with terms of 15 years or less secured by a mortgage which is often a second lien on residential real estate. Commercial real estate loans are business purpose loans secured by a mortgage on commercial real estate. Agricultural real estate loans are loans secured by a mortgage on real estate used in agriculture production. Construction real estate loans are loans secured by residential, commercial or agricultural real estate used during the construction phase of residential, commercial or agricultural projects. Consumer loans are typically unsecured or primarily secured by assets other than real estate and overdraft lines of credit are typically secured by customer deposit accounts. Other commercial loans are loans for commercial purposes primarily secured by non-real estate collateral. Other agricultural loans are loans for agricultural purposes primarily secured by non-real estate collateral. State and political subdivision loans are loans to state and local municipalities for capital and operating expenses or tax free loans used to finance commercial development.

Management considers other commercial loans, other agricultural loans, state and political subdivision loans, commercial real estate loans and agricultural real estate loans which are 90 days or more past due to be impaired. Management will also consider a loan impaired based on other factors it becomes aware of, including the customer’s results of operations and cash flows or if the loan is modified in a troubled debt restructuring. In addition, certain residential mortgages, home equity and consumer loans that are cross collateralized with commercial relationships that are determined to be impaired may also be classified as impaired. Impaired loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allocation to the allowance for loan losses or a charge-off to the allowance for loan losses.

The following table includes the recorded investment and unpaid principal balances for impaired loan receivables by class, excluding PCI loans, with the associated allowance amount, if applicable (in thousands):

September 30, 2020	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
Real estate loans:
Mortgages	$	1,125	$	609	$	296	$	905	$	20
Home Equity		159		77		59		136		9
Commercial		10,053		8,325		1,140		9,465		341
Agricultural		4,614		2,526		1,872		4,398		79
Consumer		15		3		12		15		12
Other commercial loans		2,225		1,243		360		1,603		181
Other agricultural loans		1,368		123		1,123		1,246		149
Total	$	19,559	$	12,906	$	4,862	$	17,768	$	791

December 31, 2019
Real estate loans:
Mortgages	$	1,212	$	794	$	223	$	1,017	$	20
Home Equity		170		83		66		149		12
Commercial		12,070		10,723		814		11,537		251
Agricultural		3,900		1,580		2,202		3,782		151
Consumer		4		4		-		4		-
Other commercial loans		2,517		1,555		347		1,902		147
Other agricultural loans		1,347		126		1,155		1,281		154
Total	$	21,220	$	14,865	$	4,807	$	19,672	$	735

The following tables includes the average balance of impaired loan receivables by class and the income recognized on these receivables for the three and nine month periods ended September 30, 2020 and 2019 (in thousands):

	For the Nine Months Ended
	September 30, 2020						September 30, 2019
	Average Recorded Investment		Interest Income Recognized		Interest Income Recognized Cash Basis		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized Cash Basis
Real estate loans:
Mortgages	$	998	$	15	$	-	$	1,075	$	12	$	-
Home Equity		142		5		-		108		4		-
Commercial		10,836		294		20		11,768		342		11
Agricultural		3,718		58		-		5,068		61		-
Consumer		3		-		-		2		-		-
Other commercial loans		1,757		2		-		2,088		1		-
Other agricultural loans		1,275		6		-		1,419		4		-
Total	$	18,729	$	380	$	20	$	21,528	$	424	$	11

	For the Three Months Ended
	September 30, 2020						September 30, 2019
	Average Recorded Investment		Interest Income Recognized		Interest Income Recognized Cash Basis		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized Cash Basis
Real estate loans:
Mortgages	$	900	$	5	$	-	$	1,048	$	3	$	-
Home Equity		138		2		-		143		2		-
Commercial		9,436		75		18		11,906		112		-
Agricultural		3,633		18		-		4,795		5		-
Consumer		5		-		-		4		-		-
Other commercial loans		1,626		-		-		2,073		-		-
Other agricultural loans		1,259		2		-		1,408		-		-
Total	$	16,997	$	102	$	18	$	21,377	$	122	$	-

Credit Quality Information

For commercial real estate, agricultural real estate, construction, other commercial, other agricultural and state and political subdivision loans, management uses a nine grade internal risk rating system to monitor and assess credit quality. The first five categories are considered not criticized and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The definitions of each rating are defined below:

• Pass (Grades 1-5) – These loans are to customers with credit quality ranging from an acceptable to very high quality and are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

• Special Mention (Grade 6) – This loan grade is in accordance with regulatory guidance and includes loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

• Substandard (Grade 7) – This loan grade is in accordance with regulatory guidance and includes loans that have a well-defined weakness based on objective evidence and be characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

• Doubtful (Grade 8) – This loan grade is in accordance with regulatory guidance and includes loans that have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

• Loss (Grade 9) – This loan grade is in accordance with regulatory guidance and includes loans that are considered uncollectible, or of such value that continuance as an asset is not warranted.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay the loan as agreed, the Company’s loan rating process includes several layers of internal and external oversight. The Company’s loan officers are responsible for the timely and accurate risk rating of the loans in each of their portfolios at origination and on an ongoing basis under the supervision of management.  All commercial, agricultural and state and political relationships over $500,000 are reviewed annually to ensure the appropriateness of the loan grade. In addition, the Company engages an external consultant on at least an annual basis to: 1) review a minimum of 50% of the dollar volume of the commercial, agricultural and municipal loan portfolios on an annual basis, 2) review a sample of new loans originated for over $1.0 million in the last year, 3) review a sample of borrowers with commitments greater than or equal to $1.0 million,  4) review selected loan relationships over $750,000 which are over 30 days past due or classified Special Mention, Substandard, Doubtful, or Loss, and 5) such other loans which management or the consultant deems appropriate.

The following tables represent credit exposures by internally assigned grades as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	514,291	$	10,727	$	10,400	$	38	$	-	$	535,456
Agricultural		287,998		11,882		10,822		-		-		310,702
Construction		28,656		-		-		-		-		28,656
Other commercial loans		124,563		1,239		3,843		86		-		129,731
Other agricultural loans		37,529		1,593		1,668		-		-		40,790
State and political subdivision loans		81,493		-		342		-		-		81,835
Total	$	1,074,530	$	25,441	$	27,075	$	124	$	-	$	1,127,170

December 31, 2019	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	329,831	$	4,305	$	7,848	$	39	$	-	$	342,023
Agricultural		287,044		14,261		10,159		-		-		311,464
Construction		15,519		-		-		-		-		15,519
Other commercial loans		66,880		984		2,042		64		-		69,970
Other agricultural loans		51,711		1,077		2,324		-		-		55,112
State and political subdivision loans		93,993		-		453		-		-		94,446
Total	$	844,978	$	20,627	$	22,826	$	103	$	-	$	888,534

For residential real estate mortgages, home equity and consumer loans, credit quality is monitored based on whether the loan is performing or non-performing, which is typically based on the aging status of the loan and payment activity, unless a specific action, such as bankruptcy, repossession, death or significant delay in payment occurs to raise awareness of a possible credit event. Non-performing loans include those loans that are considered nonaccrual, described in more detail below, and all loans past due 90 or more days and still accruing. The following table presents the recorded investment in those loan classes based on payment activity as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	149,171	$	1,466	$	20	$	150,657
Home Equity		57,407		20		-		57,427
Consumer		30,613		12		-		30,625
Total	$	237,191	$	1,498	$	20	$	238,709
December 31, 2019	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	156,151	$	904	$	23	$	157,078
Home Equity		59,950		60		-		60,010
Consumer		9,939		8		-		9,947
Total	$	226,040	$	972	$	23	$	227,035

Aging Analysis of Past Due Loan Receivables

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table includes an aging analysis of the recorded investment of past due loan receivables as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		PCI		Total Loan Receivables		90 Days or Greater and Accruing
Real estate loans:
Mortgages	$	736	$	208	$	811	$	1,755	$	148,882	$	20	$	150,657	$	622
Home Equity		100		43		18		161		57,266		-		57,427		-
Commercial		1,651		78		4,805		6,534		525,616		3,306		535,456		413
Agricultural		116		215		1,327		1,658		307,322		1,722		310,702		147
Construction		-		-		-		-		28,656		-		28,656		-
Consumer		142		33		12		187		30,438		-		30,625		12
Other commercial loans		169		-		1,491		1,660		128,071		-		129,731		-
Other agricultural loans		9		-		136		145		40,339		306		40,790		-
State and political subdivision loans		-		-		-		-		81,835		-		81,835		-
Total	$	2,923	$	577	$	8,600	$	12,100	$	1,348,425	$	5,354	$	1,365,879	$	1,194

Loans considered non-accrual	$	53	$	-	$	7,406	$	7,459	$	4,252	$	-	$	11,711
Loans still accruing		2,870		577		1,194		4,641		1,344,173		5,354		1,354,168
Total	$	2,923	$	577	$	8,600	$	12,100	$	1,348,425	$	5,354	$	1,365,879

December 31, 2019	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		PCI		Total Loan Receivables		90 Days or Greater and Accruing
Real estate loans:
Mortgages	$	581	$	57	$	319	$	957	$	156,098	$	23	$	157,078	$	1
Home Equity		334		11		56		401		59,609		-		60,010		1
Commercial		750		573		3,720		5,043		335,770		1,210		342,023		-
Agricultural		118		-		785		903		310,561		-		311,464		299
Construction		-		-		-		-		15,519		-		15,519		-
Consumer		113		10		8		131		9,816		-		9,947		2
Other commercial loans		217		71		1,946		2,234		67,687		49		69,970		184
Other agricultural loans		29		32		-		61		55,051		-		55,112		-
State and political subdivision loans		-		-		-		-		94,446		-		94,446		-
Total	$	2,142	$	754	$	6,834	$	9,730	$	1,104,557	$	1,282	$	1,115,569	$	487

Loans considered non-accrual	$	90	$	95	$	6,347	$	6,532	$	5,004	$	-	$	11,536
Loans still accruing		2,052		659		487		3,198		1,099,553		1,282		1,104,033
Total	$	2,142	$	754	$	6,834	$	9,730	$	1,104,557	$	1,282	$	1,115,569

Nonaccrual Loans

Loans are considered for non-accrual status upon reaching 90 days delinquency, although the Company may be receiving partial payments of interest and partial repayments of principal on such loans, or if full payment of principal and interest is not expected. Additionally, if management is made aware of other information including bankruptcy, repossession, death, or legal proceedings, the loan may be placed on non-accrual status. If a loan is 90 days or more past due and is well secured and in the process of collection, it may still be considered accruing.

The following table reflects the loan receivables, excluding PCI loans, on non-accrual status as of September 30, 2020 and December 31, 2019, respectively. The balances are presented by class of loan receivable (in thousands):

	September 30, 2020		December 31, 2019
Real estate loans:
Mortgages	$	844	$	903
Home Equity		20		59
Commercial		5,141		5,080
Agricultural		3,161		2,578
Consumer		-		6
Other commercial loans		1,551		1,837
Other agricultural loans		994		1,073
	$	11,711	$	11,536

Loan Modifications Related to COVID-19

The Company has elected to follow the loan modification guidance under Section 4013 of the CARES Act with regard to COVID-19 modifications made between March 1, 2020 and the earlier of either December 31, 2020 or the 60th day after the end of the COVID-19 national emergency. Under section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. A financial institution can then suspend the requirements under GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a TDR, and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting purposes. Similarly, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs. A modification of six months or less is considered to be a short-term loan modification. In response to the COVID-19 pandemic, the Company has prudently executed loan modifications for existing loan customers, which includes deferrals of interest and in certain cases deferrals of principal and interest. The following table presents information regarding loans which were subject to a loan modification related to COVID-19, with balances as of the date of modification and September 30, 2020, as well as the balance by modification type as of September 30, 2020.

	Number of loans		Balance as of Modification date		Number of loans as of September 30, 2020		Balance as of September 30, 2020		Principal and Interest Deferral		Principal Deferral		% of loans as of September 30, 2020
Real estate loans:
Mortgages		49	$	9,996		1	$	75	$	75	$	-		0.05	%
Home Equity		29		1,389		-		-		-		-		0.00	%
Commercial		259		144,647		9		17,712		13,039		4,673		3.31	%
Agricultural		50		20,421		2		2,368		-		2,368		0.76	%
Construction		3		1,178		-		-		-		-		0.00	%
Consumer		10		68		-		-		-		-		0.00	%
Other commercial loans		88		24,077		-		-		-		-		0.00	%
Other agricultural loans		46		3,347		-		-		-		-		0.00	%
Total		534	$	205,123		12	$	20,155	$	13,114	$	7,041		1.48	%

Troubled Debt Restructurings

In situations where, for economic or legal reasons related to a borrower’s financial difficulties, management may grant a concession for other than an insignificant period of time to the borrower that would not otherwise be considered, the related loan is classified as a Troubled Debt Restructuring (TDR). Management strives to identify borrowers in financial difficulty early and work with them to structure more affordable terms before their loan reaches nonaccrual status. These restructured terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where borrowers are granted new terms that provide for a reduction of interest or principal, or both, management measures any impairment on the restructuring by calculating the present value of the revised loan terms and comparing this balance to the Company’s investment in the loan prior to the restructuring. As these loans are individually evaluated, they are excluded from pooled portfolios when calculating the allowance for loan and lease losses and a separate allocation within the allowance for loan and lease losses is provided. Management continually evaluates loans that are considered TDRs, including payment history under the modified loan terms, the borrower’s ability to continue to repay the loan based on continued evaluation of their operating results and cash flows from operations.  As of September 30, 2020 and December 31, 2019, included within the allowance for loan losses are reserves of $293,000 and $345,000 respectively, that are associated with loans modified as TDRs.

Loan modifications that are considered TDRs completed during the three and nine months ended September 30, 2020 and 2019 were as follows (dollars in thousands):

	For the Three Months Ended September 30, 2020
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		1	$	-	$	276	$	-	$	276
Consumer		-		1		-		3		-		3
Total		-		2	$	-	$	279	$	-	$	279

	For the Nine Months Ended September 30, 2020
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		3		-		682		-		682
Agricultural		-		1		-		150		-		150
Consumer		-		1		-		3		-		3
Total		-		5	$	-	$	835	$	-	$	835

	For the Three Months Ended September 30, 2019
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		1	$	-	$	118	$	-	$	118
Consumer		-		1		-		3		-		3
Total		-		2	$	-	$	121	$	-	$	121

	For the Nine Months Ended September 30, 2019
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Mortgages		-		1	$	-	$	4	$	-	$	4
Home Equity		-		1		-		40		-		40
Commercial		-		5		-		918		-		918
Consumer		-		1		-		3		-		3
Total		-		8	$	-	$	965	$	-	$	965

Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-accrual loan. Recidivism on modified loans occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans. The following table presents the recorded investment in loans that were modified as TDRs during each 12-month period prior to the current reporting periods, which began January 1, 2020 and 2019 (9 month periods) and July 1, 2020 and 2019 (3 month periods), respectively, and that subsequently defaulted during these reporting periods (dollars in thousands):

	For the Three Months Ended								For the Nine Months Ended
	September 30, 2020				September 30, 2019				September 30, 2020				September 30, 2019
	Number of contracts		Recorded investment		Number of contracts		Recorded investment		Number of contracts		Recorded investment		Number of contracts		Recorded investment
Real estate loans:
Commercial		1	$	110		-	$	-		1	$	110		1	$	542
Agricultural		-		-		-		-		-		-		1		1,439
Other agricultural loans		-		-		-		-		-		-		4		261
Total recidivism		1	$	110		-	$	-		1	$	110		6	$	2,242

Allowance for Loan Losses

The following table segregates the allowance for loan losses (ALLL) into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of September 30, 2020 and December 31, 2019, respectively (in thousands):

	September 30, 2020						December 31, 2019
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
Real estate loans:
Residential	$	29	$	1,190	$	1,219	$	32	$	1,082	$	1,114
Commercial		341		4,965		5,306		251		4,298		4,549
Agricultural		79		4,727		4,806		151		4,871		5,022
Construction		-		85		85		-		43		43
Consumer		12		340		352		-		112		112
Other commercial loans		181		1,049		1,230		147		1,108		1,255
Other agricultural loans		149		586		735		154		807		961
State and political subdivision loans		-		514		514		-		536		536
Unallocated		-		922		922		-		253		253
Total	$	791	$	14,378	$	15,169	$	735	$	13,110	$	13,845

The following tables roll forward the balance of the ALLL by portfolio segment for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands):

	For the three months ended September 30, 2020
	Balance at June 30, 2020		Charge-offs			Recoveries		Provision			Balance at September 30, 2020
Real estate loans:
Residential	$	1,206	$	-		$	-	$	13		$	1,219
Commercial		4,944		(220	)		3		579			5,306
Agricultural		5,061		(4	)		19		(270	)		4,806
Construction		81		-			-		4			85
Consumer		362		(12	)		3		(1	)		352
Other commercial loans		1,201		(1	)		4		26			1,230
Other agricultural loans		821		-			-		(86	)		735
State and political subdivision loans		547		-			-		(33	)		514
Unallocated		604		-			-		318			922
Total	$	14,827	$	(237	)	$	29	$	550		$	15,169

	For the three months ended September 30, 2019
	Balance at June 30, 2019		Charge-offs			Recoveries		Provision			Balance at September 30, 2019
Real estate loans:
Residential	$	1,066	$	(24	)	$	-	$	49		$	1,091
Commercial		4,400		-			-		241			4,641
Agricultural		4,532		-			-		180			4,712
Construction		36		-			-		(17	)		19
Consumer		118		(10	)		6		5			119
Other commercial loans		1,328		-			3		18			1,349
Other agricultural loans		741		-			-		128			869
State and political subdivision loans		539		-			-		(3	)		536
Unallocated		544		-			-		(201	)		343
Total	$	13,304	$	(34	)	$	9	$	400		$	13,679

	For the nine months ended September 30, 2020
	Balance at December 31, 2019		Charge-offs			Recoveries		Provision			Balance at September 30, 2020
Real estate loans:
Residential	$	1,114	$	-		$	-	$	105		$	1,219
Commercial		4,549		(221	)		37		941			5,306
Agricultural		5,022		(4	)		19		(231	)		4,806
Construction		43		-			-		42			85
Consumer		112		(30	)		15		255			352
Other commercial loans		1,255		(1	)		9		(33	)		1,230
Other agricultural loans		961		-			-		(226	)		735
State and political subdivision loans		536		-			-		(22	)		514
Unallocated		253		-			-		669			922
Total	$	13,845	$	(256	)	$	80	$	1,500		$	15,169

	For the nine months ended September 30, 2019
	Balance at December 31, 2018		Charge-offs			Recoveries		Provision			Balance at September 30, 2019
Real estate loans:
Residential	$	1,105	$	(24	)	$	-	$	10		$	1,091
Commercial		4,115		(293	)		-		819			4,641
Agricultural		4,264		-			-		448			4,712
Construction		58		-			-		(39	)		19
Consumer		120		(32	)		24		7			119
Other commercial loans		1,354		(38	)		8		25			1,349
Other agricultural loans		752		-			-		117			869
State and political subdivision loans		762		-			-		(226	)		536
Unallocated		354		-			-		(11	)		343
Total	$	12,884	$	(387	)	$	32	$	1,150		$	13,679

The Company allocates the ALLL based on the factors described below, which conform to the Company’s loan classification policy and credit quality measurements. In reviewing risk within the Company’s loan portfolio, management has determined there to be several different risk categories within the loan portfolio. The ALLL consists of amounts applicable to: (i) residential real estate loans; (ii) residential real estate home equity loans; (iii) commercial real estate loans; (iv) agricultural real estate loans; (v) real estate construction loans; (vi) other commercial and agricultural loans; (vii) consumer loans; (viii) other agricultural loans and (ix) state and political subdivision loans. Factors considered in this process include general loan terms, collateral, and availability of historical data to support the analysis. Historical loss percentages are calculated and used as the basis for calculating allowance allocations. Certain qualitative factors are evaluated to determine additional inherent risks in the loan portfolio, which are not necessarily reflected in the historical loss percentages. These factors are then added to the historical allocation percentage to get the adjusted factor to be applied to non-classified loans. The following qualitative factors are analyzed:

• Level of and trends in delinquencies and impaired/classified loans

▪ Change in volume and severity of past due loans

▪ Volume of non-accrual loans

▪ Volume and severity of classified, adversely or graded loans;

• Level of and trends in charge-offs and recoveries;

• Trends in volume, terms and nature of the loan portfolio;

• Effects of any changes in risk selection and underwriting standards and any other changes in lending and recovery policies, procedures and practices;

• Changes in the quality of the Company’s loan review system;

• Experience, ability and depth of lending management and other relevant staff;

• National, state, regional and local economic trends and business conditions

▪ General economic conditions

▪ Unemployment rates

▪ Inflation rate/ Consumer Price Index

▪ Changes in values of underlying collateral for collateral-dependent loans;

• Industry conditions including the effects of external factors such as competition, legal, and regulatory requirements on the level of estimated credit losses;

• Existence and effect of any credit concentrations, and changes in the level of such concentrations; and

• Any change in the level of board oversight.

The Company analyzes its loan portfolio at least each quarter to determine the adequacy of its ALLL.

Loans determined to be TDRs are impaired and for purposes of estimating the ALLL must be individually evaluated for impairment. In calculating the impairment, the Company calculates the present value utilizing an analysis of discounted cash flows. If the present value calculated is below the recorded investment of the loan, impairment is recognized by a charge to the provision for loan and lease losses and a credit to the ALLL.

For the three months ended September 30, 2020, the allowance for commercial real estate, agricultural real estate and other agricultural loans was increased due to a general deterioration in economic activity as a result of the Covid-19 pandemic. In addition, residential real estate was increased due to an increase in past due loans. The factor related to the volume and severity of classified, adversely or graded loans was decreased for municipal loans, agriculture real estate loans and other agricultural loans due to a decrease in classified loans.  The decrease in the provision for agricultural real estate loans and  other agricultural loans is due to the decrease in outstanding loans in these loan portfolios as of September 30, 2020 compared to June 30, 2020.

For the nine months ended September 30, 2020, the allowance for all categories was increased due to a general deterioration in economic activity and increase in unemployment as a result of the Covid-19 pandemic. In addition, commercial real estate was increased due to an increase in past due and nonaccrual loans. Factors related to residential real estate were increased due to an increase in past due loans. The factor related to the volume and severity of classified, adversely or graded loans was decreased for municipal loans, agriculture real estate loans and other agricultural loans due to a decrease in classified loans. The decrease in the provision for other agricultural loans is due to the decrease in outstanding loans in these loan portfolios as of September 30, 2020 compared to December 31, 2019.

For the three months ended September 30, 2019, the allowance for commercial real estate was increased in general reserves due to an increase in the size of the portfolio and an increase in the historical loss percentage of the portfolio. This was represented as an increase in the provision. The allowance for agricultural real estate loans was increased in general reserves as a result of overall growth in the portfolio. The result of this was represented as an increase in the provision. The allowance for other agricultural loans was increased as a result of a general increase in the size of the portfolio. The result of these changes was represented as an increase in the provision.

For the nine months ended September 30, 2019, the allowance for commercial real estate was increased in general reserves due to general increase in the size of the portfolio and an increase in the historical loss percentage of the portfolio. There also was an increase in specific reserves for commercial real estate, which was partially offset by the decrease in substandard loans. The total change was represented as an increase in the provision. The allowance for agricultural real estate loans was increased in general reserves as a result of higher loan balances. Additionally, there was an increase in specific reserves. The allowance for other agricultural loans was increased as a result of a general increase in the size of the portfolio. The result of these changes was represented as an increase in the provision. These resulted in an increase in the provision. The allowance for state and political subdivision was decreased as a result a decrease in the volume of classified loans. The result of this change was represented as a decrease in the provision.

Foreclosed Assets Held For Sale

Foreclosed assets acquired in settlement of loans are carried at fair value, less estimated costs to sell, and are included in other assets on the Consolidated Balance Sheet. As of September 30, 2020 and December 31, 2019, included within other assets are $2,726,000 and $3,404,000, respectively, of foreclosed assets. As of September 30, 2020, included within the foreclosed assets are $199,000 of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to the period end. As of September 30, 2020, the Company had initiated formal foreclosure proceedings on $723,000 of consumer residential mortgages, which had not yet been transferred into foreclosed assets In accordance with various state regulations, foreclosure actions have been suspended into the fourth quarter.

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Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2020

Goodwill and Other Intangible Assets [Abstract]

Goodwill and Other Intangible Assets

Note 6 – Goodwill and Other Intangible Assets

The following table provides the gross carrying value and accumulated amortization of intangible assets as of September 30, 2020 and December 31, 2019 (in thousands):

	September 30, 2020							December 31, 2019
	Gross carrying value		Accumulated amortization			Net carrying value		Gross carrying value		Accumulated amortization			Net carrying value
Amortized intangible assets (1):
MSRs	$	2,058	$	(1,220	)	$	838	$	1,718	$	(1,077	)	$	641
Core deposit intangibles		1,943		(1,243	)		700		1,786		(1,081	)		705
Covenant not to compete		125		(125	)		-		125		(125	)		-
Total amortized intangible assets	$	4,126	$	(2,588	)	$	1,538	$	3,629	$	(2,283	)	$	1,346
Unamortized intangible assets:
Goodwill	$	31,376						$	23,296

(1) Excludes fully amortized intangible assets

The following table provides the current year and estimated future amortization expense for amortized intangible assets for the next five years (in thousands). We based our projections of amortization expense shown below on existing asset balances at September 30, 2020. Future amortization expense may vary from these projections:

	MSRs		Core deposit intangibles		Covenant not to compete		Total
Three months ended September 30, 2020 (actual)	$	46	$	57	$	-	$	103
Nine months ended September 30, 2020 (actual)		144		162		-		306
Three months ended September 30, 2019 (actual)		44		58		8		110
Nine months ended September 30, 2019 (actual)		138		174		24		336
Estimate for year ending December 31,
Remaining 2020		60		55		-		115
2021		213		192		-		405
2022		168		156		-		324
2023		130		121		-		251
2024		98		85		-		183
Thereafter		169		91		-		260
Total	$	838	$	700	$	-	$	1,538

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Employee Benefit Plans

9 Months Ended

Sep. 30, 2020

Employee Benefit Plans [Abstract]

Employee Benefit Plans

Note 7 - Employee Benefit Plans

For additional detailed disclosure on the Company’s pension and employee benefits plans, please refer to Note 11 of the Company’s Consolidated Financial Statements included in the 2019 Annual Report on Form 10-K.

Noncontributory Defined Benefit Pension Plan

The Bank sponsors a trusteed noncontributory defined benefit pension plan (“Pension Plan”) covering substantially all employees and officers hired prior to January 1, 2007. Additionally, the Bank assumed the noncontributory defined benefit pension plan of the First National Bank of Fredericksburg (FNB) when FNB was acquired in December 2015. The FNB plan was closed and all assets were distributed in the fourth quarter of 2019. The Bank’s funding policy is to make annual contributions, if needed, based upon the funding formula developed by the plans’ actuary. Any employee with a hire date of January 1, 2007 or later is not eligible to participate in the Pension Plan.

In lieu of the Pension Plan, employees with a hire date of January 1, 2007 or later are eligible to receive, after meeting certain length of service requirements, an annual discretionary 401(k) plan contribution from the Bank equal to a percentage of an employee’s base compensation.  The contribution amount, if any, is placed in a separate account within the 401(k) plan and is subject to a vesting requirement.

For employees who are eligible to participate in the Pension Plan, the Pension Plan requires benefits to be paid to eligible employees based primarily upon age and compensation rates during employment.  Upon retirement or other termination of employment, employees can elect either an annuity benefit or a lump sum distribution of vested benefits in the Pension Plan.

The following sets forth the components of net periodic benefit costs of the Pension Plan and the line item on the Consolidated Statement of Income where such amounts are included, for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019			Affected line item on the Consolidated Statement of Income
Service cost	$	82		$	78		$	247		$	256		Salary and Employee Benefits
Interest cost		83			123			249			401		Other Expenses
Expected return on plan assets		(215	)		(187	)		(646	)		(595	)	Other Expenses
Partial Settlement		-			-			307			-		Other Expenses
Net amortization and deferral		59			60			175			181		Other Expenses
Net periodic benefit cost	$	9		$	74		$	332		$	243

The Bank expects to contribute $250,000 to the Pension Plan during the fourth quarter of 2020.

Restricted Stock Plan

The Company maintains a Restricted Stock Plan (the “Plan”) whereby employees and non-employee corporate directors are eligible to receive awards of restricted stock based upon performance related requirements.  Awards granted under the Plan are in the form of the Company’s common stock and are subject to certain vesting requirements including continuous employment or service with the Company.  In April of 2016, the Company’s stockholders authorized a total of 150,000 shares of the Company’s common stock to be made available under the Plan. As of September 30, 2020, 124,479 shares remain available to be issued under the Plan.  The Plan assists the Company in attracting, retaining and motivating employees to make substantial contributions to the success of the Company and to increase the emphasis on the use of equity as a key component of compensation.

The following table details the vesting, awarding and forfeiting of restricted stock during the three and nine months ended September 30, 2020:

	Three months				Nine months
	Unvested Shares		Weighted Average Market Price		Unvested Shares			Weighted Average Market Price
Outstanding, beginning of period		10,786	$	56.60		10,877		$	60.11
Granted		85		58.37		4,732			51.29
Forfeited		-		-		-			-
Vested		-		-		(4,738	)		(59.32	)
Outstanding, end of period		10,871	$	56.61		10,871		$	56.61

Compensation expense related to restricted stock is recognized, based on the market price of the stock at the grant date, over the vesting period. Compensation expense related to restricted stock was $248,000 and $219,000 for the nine months ended September 30, 2020 and 2019, respectively. For the three months ended September 30, 2020 and 2019, compensation expense totaled $83,000 and $78,000, respectively. At September 30, 2020, the total compensation cost related to nonvested awards that had not yet been recognized was $615,000, which is expected to be recognized over the next three years.

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Accumulated Comprehensive Income (Loss)

9 Months Ended

Sep. 30, 2020

Accumulated Comprehensive Income (Loss) [Abstract]

Accumulated Comprehensive Income (Loss)

Note 8 – Accumulated Comprehensive Income (Loss)

The following tables present the changes in accumulated other comprehensive income (loss) by component, net of tax, for the three and nine months ended September 30, 2020 and 2019 (in thousands):

	Nine months ended September 30, 2020
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Unrealized loss on interest rate swap (a)			Total
Balance as of December 31, 2019	$	2,290		$	(2,919	)	$	-		$	(629	)
Other comprehensive income (loss) before reclassifications (net of tax)		3,705			-			(353	)		3,352
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)		(239	)		381			-			142
Net current period other comprehensive income (loss)		3,466			381			(353	)		3,494
Balance as of September 30, 2020	$	5,756		$	(2,538	)	$	(353	)	$	2,865

	Nine months ended September 30, 2019
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Unrealized loss on interest rate swap (a)		Total
Balance as of December 31, 2018	$	(973	)	$	(2,948	)	$	-	$	(3,921	)
Other comprehensive income (loss) before reclassifications (net of tax)		3,495			-			-		3,495
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)		(6	)		143			-		137
Net current period other comprehensive income (loss)		3,489			143			-		3,632
Balance as of September 30, 2019	$	2,516		$	(2,805	)	$	-	$	(289	)

	Three months ended September 30, 2020
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Unrealized loss on interest rate swap (a)			Total
Balance as of June 30, 2020	$	5,938		$	(2,585	)	$	(446	)	$	2,907
Other comprehensive income (loss) before reclassifications (net of tax)		(35	)		-			93			58
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)		(147	)		47			-			(100	)
Net current period other comprehensive income (loss)		(182	)		47			93			(42	)
Balance as of September 30, 2020	$	5,756		$	(2,538	)	$	(353	)	$	2,865

	Three months ended September 30, 2019
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Unrealized loss on interest rate swap (a)		Total
Balance as of June 30, 2019	$	2,515		$	(2,852	)	$	-	$	(337	)
Other comprehensive income (loss) before reclassifications (net of tax)		7			-			-		7
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)		(6	)		47			-		41
Net current period other comprehensive income (loss)		1			47			-		48
Balance as of September 30, 2019	$	2,516		$	(2,805	)	$	-	$	(289	)

(a) Amounts in parentheses indicate debits on the Consolidated Balance Sheet.

The following table presents the significant amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2020 and 2019 (in thousands):

Details about accumulated other comprehensive income (loss)	Amount reclassified from accumulated comprehensive income (loss) (a)						Affected line item in the Consolidated Statement of  Income
	Three Months Ended September 30, 2020
	2020			2019
Unrealized gains and losses on available for sale securities
	$	185		$	8		Available for sale securities gains, net
		(38	)		(2	)	Provision for income taxes
	$	147		$	6
Defined benefit pension items
	$	(59	)	$	(60	)	Other expenses
		12			13		Provision for income taxes
	$	(47	)	$	(47	)
Total reclassifications	$	100		$	(41	)

	Nine Months Ended September 30,
	2020			2019
Unrealized gains and losses on available for sale securities
	$	302		$	8		Available for sale securities gains, net
		(63	)		(2	)	Provision for income taxes
	$	239		$	6
Defined benefit pension items
	$	(482	)	$	(181	)	Other expenses
		101			38		Provision for income taxes
	$	(381	)	$	(143	)
Total reclassifications	$	(142	)	$	(137	)

(a) Amounts in parentheses indicate expenses and other amounts indicate income on the Consolidated Statement of Income

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Fair Value Measurements

9 Months Ended

Sep. 30, 2020

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 9 – Fair Value Measurements

The Company has established a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by this hierarchy are as follows:

Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level III: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. Our valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s monthly and/or quarterly valuation process.

Assets and Liabilities Required to be Measured at Fair Value on a Recurring Basis

The fair values of equity securities and securities available for sale are determined by quoted prices in active markets, when available, and classified as Level I. If quoted market prices are not available, the fair value is determined by a matrix pricing, which is a mathematical technique, widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities and classified as Level II. The fair values consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

The following tables present the assets and liabilities reported on the Consolidated Balance Sheet at their fair value on a recurring basis as of September 30, 2020 and December 31, 2019 by level within the fair value hierarchy (in thousands). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

September 30, 2020	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Assets
Equity securities	$	1,696	$	-	$	-	$	1,696
Available for sale securities:
U.S. Agency securities		-		80,698		-		80,698
U.S. Treasury securities		28,167		-		-		28,167
Obligations of state and    political subdivisions		-		91,848		-		91,848
Corporate obligations		-		6,507		-		6,507
Mortgage-backed securities in    government sponsored entities		-		80,618		-		80,618
Liabilities
Interest rate swaps		-		448		-		448
December 31, 2019	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Assets
Equity securities	$	701	$	-	$	-	$	701
Available for sale securities:
U.S. Agency securities		-		84,863		-		84,863
U.S. Treasuries securities		27,661		-		-		27,661
Obligations of state and    political subdivisions		-		61,455		-		61,455
Corporate obligations		-		3,328		-		3,328
Mortgage-backed securities in       government sponsored entities		-		63,399		-		63,399

Assets and Liabilities Required to be Measured and Reported at Fair Value on a Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis as of September 30, 2020 and December 31, 2019 are included in the table below (in thousands):

September 30, 2020	Level I		Level II		Level III		Total
Impaired Loans	$	-	$	-	$	4,072	$	4,072
Other real estate owned		-		-		2,692		2,692
December 31, 2019	Level I		Level II		Level III		Total
Impaired Loans	$	-	$	-	$	3,860	$	3,860
Other real estate owned		-		-		3,299		3,299

• Impaired Loans - The Company has measured impairment on impaired loans generally based on the fair value of the loan’s collateral.  Fair value is generally determined based upon independent third-party appraisals of the properties. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed.   Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value.  If the fair value of the collateral dependent loan is less than the carrying amount of the loan a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included in the table above as a Level III measurement.  If the fair value of the collateral exceeds the carrying amount of the loan, then the loan is not included in the table above as it is not currently being carried at its fair value. The fair values above excluded estimated selling costs of $449,000 and $424,000 at September 30, 2020 and December 31, 2019, respectively.

• Other Real Estate Owned (OREO) – OREO is carried at the lower of cost or fair value, less estimated costs to sell, which is measured at the date of foreclosure.  If the fair value of the collateral exceeds the carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the table above. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. The fair value of OREO is based on the appraised value of the property, which is generally unadjusted by management and is based on comparable sales for similar properties in the same geographic region as the subject property, and is included in the above table as a Level II measurement.  In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed.  In these cases, the loans are categorized in the above table as a Level III measurement since these adjustments are considered to be unobservable inputs. Income and expenses from operations and further declines in the fair value of the collateral subsequent to foreclosure are included in net expenses from OREO.

The following table provides a listing of the significant unobservable inputs used in the fair value measurement process for items valued utilizing Level III techniques (dollars in thousands).

September 30, 2020	Fair Value		Valuation Technique(s)	Unobservable input	Range			Weighted average
Impaired Loans	$	4,072	Appraised Collateral Values	Discount for time since appraisal		0-100	%		17.70	%
				Selling costs		5%-10	%		9.25	%
				Holding period	0 - 12 months			11.86 months
Other real estate owned		2,692	Appraised Collateral Values	Discount for time since appraisal		10-30	%		18.79	%

December 31, 2019	Fair Value		Valuation Technique(s)	Unobservable input	Range			Weighted average
Impaired Loans		3,860	Appraised Collateral Values	Discount for time since appraisal		0-100	%		19.22	%
				Selling costs		5%-10	%		9.26	%
				Holding period	6 - 12 months			11.76 months
Other real estate owned		3,299	Appraised Collateral Values	Discount for time since appraisal		5-43	%		16.37	%

Financial Instruments Not Required to be Measured or Reported at Fair Value

The carrying amount and fair value of the Company’s financial instruments that are not required to be measured or reported at fair value on a recurring basis are as follows (in thousands):

September 30, 2020	Carrying Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Interest bearing time deposits with other banks	$	13,758	$	14,406	$	-	$	-	$	14,406
Loans held for sale		19,320		19,320		-		-		19,320
Net loans		1,350,710		1,369,709		-		-		1,369,709
Financial liabilities:
Deposits		1,552,753		1,558,516		1,168,405		-		390,111
Borrowed funds		99,602		99,616		-		-		99,616

December 31, 2019	Carrying Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Interest bearing time deposits with other banks	$	14,256	$	14,635	$	-	$	-	$	14,635
Loans held for sale		815		815		-		-		815
Net loans		1,101,724		1,091,006		-		-		1,091,006
Financial liabilities:
Deposits		1,211,118		1,211,200		938,387		-		272,813
Borrowed funds		85,117		84,581		-		-		84,581

The carrying amounts for cash and due from banks, bank owned life insurance, regulatory stock, accrued interest receivable and payable approximate fair value and are considered Level I measurements.

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Acquisition of MidCoast Community Bancorp, Inc

9 Months Ended

Sep. 30, 2020

Acquisition of MidCoast Community Bancorp, Inc [Abstract]

Acquisition of MidCoast Community Bancorp, Inc

Note 10 – Acquisition of MidCoast Community Bancorp, Inc.

In the third quarter of 2019, the Company announced the signing of a definitive merger agreement to acquire 100% of the outstanding equity interest of MidCoast Community Bancorp, Inc. (“MidCoast”) for $6.50 per share in cash and stock. MidCoast was a Pennsylvania Corporation that conducted its business primarily through, its wholly owned subsidiary MidCoast Community Bank, which operated from a main office in Wilmington, Delaware, and two branches in Wilmington, Delaware, and one branch in Dover, Delaware.

The transaction closed on April 17, 2020, with MidCoast Community Bank having been merged into First Citizens Community Bank, with First Citizens Community Bank as the surviving entity. The acquisition established the Company’s presence in the Wilmington and Dover, Delaware markets.

Under the terms of the merger agreement, the Company acquired all of the outstanding shares of MidCoast for a total purchase price of approximately $26,843,000.  As a result of the acquisition, the Company issued 373,356 common shares and $7.6 million in cash to the former shareholders of MidCoast. The shares were issued with a value of $51.50 per share, which was based on the close price of the Company’s stock on April 17, 2020.

The acquired assets and assumed liabilities were measured at estimated fair values. Management made significant estimates and exercised significant judgment in accounting for the acquisition.  Management measured loan fair values based on loan file reviews, appraised collateral values, expected cash flows, and historical loss factors of MidCoast.  Real estate acquired through foreclosure was primarily valued based on appraised collateral values.  The Company also recorded an identifiable intangible asset representing the core deposit base of MidCoast based on management’s evaluation of the cost of such deposits relative to alternative funding sources.  Management used significant estimates including the average lives of depository accounts, future interest rate levels, and the cost of servicing various depository products.

The business combination resulted in the acquisition of loans with and without evidence of credit quality deterioration. MidCoast’s loans were deemed to have credit impairment at the acquisition date if the Company did not expect to receive all contractually required cash flows due to concerns about credit quality.  Such loans were fair valued and the difference between contractually required payments at the acquisition date and cash flows expected to be collected was recorded as a non-accretable difference. At the acquisition date, the Company recorded $4,869,000 of purchased credit-impaired loans. The method of measuring carrying value of purchased loans differs from loans originated by the Company (originated loans), and as such, the Company identifies purchased loans and purchased loans with a credit quality discount and originated loans at amortized cost.

MidCoast’s loans without evidence of credit deterioration were fair valued by discounting both expected principal and interest cash flows using an observable discount rate for similar instruments that a market participant would consider in determining fair value.  Additionally, consideration was given to management’s best estimates of default rates and pre-payment speeds.

The following table summarizes the purchase of MidCoast as of April 17, 2020:

(In Thousands, Except Per Share Data)
Purchase Price Consideration in Common Stock
Citizens Financial Services, Inc. shares issued		373,356
Value assigned to Citizens Financial Services, Inc. common share	$	51.50
Purchase price assigned to MidCoast common shares exchanged for Citizens Financial Services, Inc.				$	19,227
Purchase Price Consideration - Cash for Common Stock
Purchase price assigned to The First National Bank of Fredericksburg common shares exchanged for cash					7,616
Total Purchase Price					26,843
Net Assets Acquired:
MidCoast Community Bancorp, Inc shareholders’ equity	$	24,330
Adjustments to reflect assets acquired at fair value:
Investments
Loans
Interest rate		1,424
General credit		(4,375	)
Specific credit - non-amortizing		(2,135	)
Specific credit - amortizing		(966	)
Core deposit intangible		157
Owned premises		(426	)
Other assets		65
Deferred tax assets		2,217
Adjustments to reflect liabilities acquired at fair value:
Time deposits		(1,018	)
Borrowings		(497	)
Other liabilities		(13	)
					18,763
Goodwill resulting from merger				$	8,080

The following condensed statement reflects the amounts recognized as of the acquisition date for each major class of asset acquired and liability assumed:

(In Thousands)
Total purchase price				$	26,843
Net assets acquired:
Cash and cash equivalents	$	8,637
Loans		223,235
Premises and equipment, net		1,787
Accrued interest receivable		586
Bank-owned life insurance		3,766
Intangibles		157
Deferred tax asset		3,402
Other assets		2,878
Time deposits		(123,841	)
Deposits other than time deposits		(84,985	)
Accrued interest payable		(164	)
Borrowings		(15,497	)
Other liabilities		(1,198	)
					18,763
Goodwill resulting from the MidCoast merger				$	8,080

The Company recorded goodwill and other intangibles associated with the acquisition of MidCoast totaling $8,237,000.  Goodwill is not amortized, but is periodically evaluated for impairment.  The Company did not recognize any impairment from April 17, 2020 to September 30, 2020. None of the goodwill acquired is expected to be deductible for tax purposes.

Identifiable intangibles are amortized to their estimated residual values over the expected useful lives. Such lives are also periodically reassessed to determine if any amortization period adjustments are required. For the period from April 17, 2020 to September 30, 2020, no such adjustments were recorded.  The identifiable intangible asset consists of core deposit intangibles which are being amortized on an accelerated basis over the useful life of such assets.  The gross carrying amount of the core deposit intangible at September 30, 2020 was $157,000, with $12,000 accumulated amortization, respectively, as of that date.

As of September 30, 2020, the current year and estimated future amortization expense for the core deposit intangibles was (in thousands):

	Core deposit intangibles
Three months ended September 30, 2020 (actual)	$	7
Nine months ended September 30, 2020 (actual)		12
Estimate for year ending December 31,
Remaining 2020		7
2021		27
2022		24
2023		21
2024		18
Thereafter		48
Total	$	145

Amounts recognized separately from the acquisition include primarily legal fees, investment banking fees, system conversion costs, severance costs and contract termination costs. These costs were included in merger and acquisition expenses within non-interest expenses on the Consolidated Statement of Income and amounted to approximately $2,179,000 for the nine months ended September 30, 2020.

Results of operations for MidCoast prior to the acquisition date are not included in the Consolidated Statement of Income for the nine months ended September 30, 2020. 

The following table presents financial information regarding the former MidCoast operations included in our Consolidated Statement of Income from the date of acquisition through September 30, 2020 under the column “Actual from Acquisition Date through September 30, 2020”.  In addition, the following table presents unaudited pro forma information as if the acquisition of MidCoast had occurred on January 1, 2019 under the “Pro Forma” columns.  The table below has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisition occurred as of the beginning of the periods presented, nor is it indicative of future results. Furthermore, the unaudited proforma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings as a result of the integration and consolidation of the acquisition.  Merger and acquisition integration costs and amortization of fair value adjustments are included in the numbers below.

			Pro Forma for
	Actual from Acquisition		Three Months Ended				Nine Months Ended
	Date Through		September 30,				September 30,
(In Thousands, Except Per Share Data)	September 30, 2020		2020		2019		2020		2019
Net interest income	$	5,387	$	16,052	$	15,404	$	47,642	$	44,918
Non-interest income		107		3,538		2,239		7,779		6,416
Net income		3,035		7,678		5,849		16,306		16,649
Pro forma earnings per share:
Basic			$	1.96	$	1.49	$	4.16	$	4.23
Diluted			$	1.96	$	1.49	$	4.16	$	4.23

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Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2020

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 11 – Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.  The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset.  The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted.  In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. In that regard, we have formed a cross-functional working group. The working group is comprised of individuals from various functional areas including credit, loan origination and finance. We are currently working through our implementation plan which includes assessment and documentation of processes, internal controls and data sources; model development and documentation; and system configuration, among other things. We are also in the process of implementing a third-party vendor solution to assist us in the application of the ASU 2016-13. The adoption of the ASU 2016-13 could result in an increase in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. While we are currently unable to reasonably estimate the impact of adopting ASU 2016-13, we expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan portfolio as well as the prevailing economic conditions and forecasts as of the adoption date.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test.  In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.  Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which deferred the effective date for ASC 350, Intangibles – Goodwill and Other, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements.  The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits (Topic 715-20). This Update amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The Update eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The Update also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. This Update is effective for public business entities for fiscal years ending after December 15, 2020, and must be applied on a retrospective basis.  For all other entities, this Update is effective for fiscal years ending after December 15, 2021.  This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. Topic 326, Financial Instruments – Credit Losses amendments are effective for SEC registrants for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other public business entities, the effective date is for fiscal years beginning after December 15, 2020, and for all other entities, the effective date is for fiscal years beginning after December 15, 2021.  Topic 815, Derivatives and Hedging amendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. For entities that have adopted the amendments in Update 2017-12, the effective date is as of the beginning of the first annual period beginning after the issuance of this Update. Topic 825, Financial Instruments amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Furthermore, the ASU provides a one-year deferral of the effective dates of the ASUs on derivatives and hedging for companies that are not public business entities. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses, Topic 326, which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for the applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted ASU 2016-13, the effective dates and transition requirements are the same as those in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-05 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted once ASU 2016-13 has been adopted.  In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company qualifies as a smaller reporting company and does not expect to early adopt ASU 2016-13.

In July 2019, the FASB issued ASU 2019-07, Codification Updates to SEC Sections, Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates. This ASU amends various SEC paragraphs pursuant to the issuance of SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization. Other miscellaneous updates to agree to the electronic Code of Federal Regulations also have been incorporated.

In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The Update defers the effective dates of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This Update also amends the mandatory effective date for the elimination of Step 2 from the goodwill impairment test under ASU No. 2017-04, Intangibles ‒ Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (Goodwill), to align with those used for credit losses. Furthermore, the ASU provides a one-year deferral of the effective dates of the ASUs on derivatives and hedging and leases for companies that are not public business entities. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event; and extends the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis. The effective dates in this Update are the same as those applicable for ASU 2019-10. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s consolidated financial position or results of operations.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), to simplify the accounting for income taxes, change the accounting for certain tax transactions, and make minor improvements to the codification. This Update provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and provides guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction. The Update also changes current guidance for making an intraperiod allocation, if there is a loss in continuing operations and gains outside of continuing operations; determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method of accounting; accounting for tax law changes and year-to-date losses in interim periods; and determining how to apply the income tax guidance to franchise taxes that are partially based on income. For public business entities, the amendments in this Update are effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s consolidated financial position or results of operations.

In January 2020, the FASB issued ASU 2020-1, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), to clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The amendments also clarify that, for the purpose of applying paragraph 815-10-15-141(a) an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option, in accordance with the financial instruments guidance in Topic 825. An entity also would evaluate the remaining characteristics in paragraph 815-10-15-141 to determine the accounting for those forward contracts and purchased options. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s consolidated financial position or results of operations.

In January 2020, the FASB issued ASU 2020-2, Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), February 2020, to add and amend SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Accounting Bulletin No. 119, related to the new credit losses standard, and comments by the SEC staff related to the revised effective date of the new leases standard. This ASU is effective upon issuance. This did not have a significant impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU 2020-3, Codification Improvements to Financial Instruments. This ASU was issued to improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. The ASU includes seven issues that describe the areas of improvement and the related amendments to GAAP; they are intended to make the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope and are not expected to significantly change practice for most entities. Among its provisions, the ASU clarifies that all entities, other than public business entities that elected the fair value option, are required to provide certain fair value disclosures under ASC 825, Financial Instruments, in both interim and annual financial statements. It also clarifies that the contractual term of a net investment in a lease under Topic 842 should be the contractual term used to measure expected credit losses under Topic 326. Amendments related to ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is not permitted before an entity’s adoption of ASU 2016-01. Amendments related to ASU 2016-13 for entities that have not yet adopted that guidance are effective upon adoption of the amendments in ASU 2016-13. Early adoption is not permitted before an entity’s adoption of ASU 2016-13. Amendments related to ASU 2016-13 for entities that have adopted that guidance are effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Other amendments are effective upon issuance of this ASU. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s consolidated financial position or results of operations.

In March 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s consolidated financial position or results of operations.

In August 2020, the FASB issued ASU 2020-6, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.  This ASU removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a substantial premium.  This ASU requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments. The amendments in this ASU are effective for public business entities that are not smaller reporting companies, for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.  For all other entities, this ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The guidance may be early adopted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. This Update is not expected to have a significant impact on the Company’s financial statements.

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Basis of Presentation (Policies)

9 Months Ended

Sep. 30, 2020

Basis of Presentation [Abstract]

Basis of Presentation

Citizens Financial Services, Inc. (individually and collectively with its direct and indirect subsidiaries, the “Company”) is a Pennsylvania corporation and the holding company of its wholly owned subsidiary, First Citizens Community Bank (the “Bank”), and of the Bank’s wholly owned subsidiaries, First Citizens Insurance Agency, Inc. (“First Citizens Insurance”) and 1^st Realty of PA LLC (“Realty”). The Bank is the wholly owned subsidiary of CZFS Acquisition Company, LLC, which is a wholly owned subsidiary of the Company. Realty was formed in March of 2019 to manage and sell properties acquired by the Bank in the settlement of a bankruptcy filing with a commercial customer.

The accompanying consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”) and in conformity with U.S. generally accepted accounting principles.  Because this report is based on an interim period, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted.  Certain of the prior year amounts have been reclassified to conform with the current year presentation.  Such reclassifications had no effect on net income or stockholders’ equity.  All material inter‑company balances and transactions have been eliminated in consolidation.

In the opinion of management of the Company, the accompanying interim financial statements at September 30, 2020 and for the periods ended September 30, 2020 and 2019 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations at the dates and for the periods presented. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and of revenues and expenses for the periods covered by the Consolidated Statement of Income. The financial performance reported for the Company for the three and nine month periods ended September 30, 2020 is not necessarily indicative of the results to be expected for the full year.  This information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

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Revenue Recognition (Policies)

9 Months Ended

Sep. 30, 2020

Revenue Recognition [Abstract]

Revenue Recognition

In accordance with ASC 606, Management determined that the primary sources of revenue emanating from interest and dividend income on loans and investments along with noninterest revenue resulting from investment security gains, loan servicing, gains on loans sold and earnings on bank owned life insurances are not within the scope of ASC 606. The main types of noninterest income within the scope of the standard are as follows:

• Service charges on deposit accounts – The Company has contracts with its deposit customers where fees are charged if certain parameters are not met. These agreements can be cancelled at any time by either the Company or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. The Company also has transaction fees related to specific transactions or activities resulting from a customer request or activity that include overdraft fees, online banking fees, interchange fees, ATM fees and other transaction fees. All of these fees are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time upon the completion of the requested service/transaction.

• Trust fees – Typical contracts for trust services are based on a fixed percentage of the assets earned ratably over a defined period and billed on a monthly basis. Fees charged to customers’ accounts are recognized as revenue over the period during which the Company fulfills its performance obligation under the contract (i.e., holding client asset in a managed fiduciary trust account). For these accounts, the performance obligation of the Company is typically satisfied by holding and managing the customer’s assets over time. Other fees related to specific customer requests are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time, upon completion of the requested service/transaction.

• Gains and losses on sale of other real estate owned – Gains and losses are recognized at the completion of the property sale when the buyer obtains control of the real estate and all of the performance obligations of the Company have been satisfied. Evidence of the buyer obtaining control of the asset include transfer of the property title, physical possession of the asset, and the buyer obtaining control of the risks and rewards related to the asset. In situations where the Company agrees to provide financing to facilitate the sale, additional analysis is performed to ensure that the contract for sale identifies the buyer and seller, the asset to be transferred, payment terms, and that the contract has a true commercial substance and that collection of amounts due from the buyer are reasonable. In situations where financing terms are not reflective of current market terms, the transaction price is discounted impacting the gain/loss and the carrying value of the asset.

• Brokerage and insurance – Fees includes commissions from the sales of investments and insurance products recognized on a trade date basis as the performance obligation is satisfied at the point in time in which the trade is processed. Additional fees are based on a percentage of the market value of customer accounts and billed on a monthly or quarterly basis. The Company’s performance obligation under the contracts with certain customers is generally satisfied through the passage of time as the Company monitors and manages the assets in the customer’s portfolio and is not dependent on certain return or performance level of the customer’s portfolio. Fees for these services are billed monthly and are recorded as revenue at the end of the month for which the wealth management service has been performed. Other performance obligations (such as the delivery of account statements to customers) are generally considered immaterial to the overall transaction price.

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Recent Accounting Pronouncements (Policies)

9 Months Ended

Sep. 30, 2020

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.  The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset.  The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted.  In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. In that regard, we have formed a cross-functional working group. The working group is comprised of individuals from various functional areas including credit, loan origination and finance. We are currently working through our implementation plan which includes assessment and documentation of processes, internal controls and data sources; model development and documentation; and system configuration, among other things. We are also in the process of implementing a third-party vendor solution to assist us in the application of the ASU 2016-13. The adoption of the ASU 2016-13 could result in an increase in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. While we are currently unable to reasonably estimate the impact of adopting ASU 2016-13, we expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan portfolio as well as the prevailing economic conditions and forecasts as of the adoption date.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test.  In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.  Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which deferred the effective date for ASC 350, Intangibles – Goodwill and Other, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements.  The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits (Topic 715-20). This Update amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The Update eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The Update also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. This Update is effective for public business entities for fiscal years ending after December 15, 2020, and must be applied on a retrospective basis.  For all other entities, this Update is effective for fiscal years ending after December 15, 2021.  This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. Topic 326, Financial Instruments – Credit Losses amendments are effective for SEC registrants for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other public business entities, the effective date is for fiscal years beginning after December 15, 2020, and for all other entities, the effective date is for fiscal years beginning after December 15, 2021.  Topic 815, Derivatives and Hedging amendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. For entities that have adopted the amendments in Update 2017-12, the effective date is as of the beginning of the first annual period beginning after the issuance of this Update. Topic 825, Financial Instruments amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Furthermore, the ASU provides a one-year deferral of the effective dates of the ASUs on derivatives and hedging for companies that are not public business entities. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses, Topic 326, which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for the applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted ASU 2016-13, the effective dates and transition requirements are the same as those in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-05 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted once ASU 2016-13 has been adopted.  In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company qualifies as a smaller reporting company and does not expect to early adopt ASU 2016-13.

In July 2019, the FASB issued ASU 2019-07, Codification Updates to SEC Sections, Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates. This ASU amends various SEC paragraphs pursuant to the issuance of SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization. Other miscellaneous updates to agree to the electronic Code of Federal Regulations also have been incorporated.

In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The Update defers the effective dates of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This Update also amends the mandatory effective date for the elimination of Step 2 from the goodwill impairment test under ASU No. 2017-04, Intangibles ‒ Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (Goodwill), to align with those used for credit losses. Furthermore, the ASU provides a one-year deferral of the effective dates of the ASUs on derivatives and hedging and leases for companies that are not public business entities. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event; and extends the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis. The effective dates in this Update are the same as those applicable for ASU 2019-10. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s consolidated financial position or results of operations.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), to simplify the accounting for income taxes, change the accounting for certain tax transactions, and make minor improvements to the codification. This Update provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and provides guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction. The Update also changes current guidance for making an intraperiod allocation, if there is a loss in continuing operations and gains outside of continuing operations; determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method of accounting; accounting for tax law changes and year-to-date losses in interim periods; and determining how to apply the income tax guidance to franchise taxes that are partially based on income. For public business entities, the amendments in this Update are effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s consolidated financial position or results of operations.

In January 2020, the FASB issued ASU 2020-1, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), to clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The amendments also clarify that, for the purpose of applying paragraph 815-10-15-141(a) an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option, in accordance with the financial instruments guidance in Topic 825. An entity also would evaluate the remaining characteristics in paragraph 815-10-15-141 to determine the accounting for those forward contracts and purchased options. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s consolidated financial position or results of operations.

In January 2020, the FASB issued ASU 2020-2, Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), February 2020, to add and amend SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Accounting Bulletin No. 119, related to the new credit losses standard, and comments by the SEC staff related to the revised effective date of the new leases standard. This ASU is effective upon issuance. This did not have a significant impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU 2020-3, Codification Improvements to Financial Instruments. This ASU was issued to improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. The ASU includes seven issues that describe the areas of improvement and the related amendments to GAAP; they are intended to make the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope and are not expected to significantly change practice for most entities. Among its provisions, the ASU clarifies that all entities, other than public business entities that elected the fair value option, are required to provide certain fair value disclosures under ASC 825, Financial Instruments, in both interim and annual financial statements. It also clarifies that the contractual term of a net investment in a lease under Topic 842 should be the contractual term used to measure expected credit losses under Topic 326. Amendments related to ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is not permitted before an entity’s adoption of ASU 2016-01. Amendments related to ASU 2016-13 for entities that have not yet adopted that guidance are effective upon adoption of the amendments in ASU 2016-13. Early adoption is not permitted before an entity’s adoption of ASU 2016-13. Amendments related to ASU 2016-13 for entities that have adopted that guidance are effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Other amendments are effective upon issuance of this ASU. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s consolidated financial position or results of operations.

In March 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s consolidated financial position or results of operations.

In August 2020, the FASB issued ASU 2020-6, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.  This ASU removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a substantial premium.  This ASU requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments. The amendments in this ASU are effective for public business entities that are not smaller reporting companies, for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.  For all other entities, this ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The guidance may be early adopted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. This Update is not expected to have a significant impact on the Company’s financial statements.

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Revenue Recognition (Tables)

9 Months Ended

Sep. 30, 2020

Revenue Recognition [Abstract]

Disaggregation of Revenue Derived from Contracts with Customers

The following table depicts the disaggregation of revenue derived from contracts with customers to depict the nature, amount, timing, and uncertainty of revenue and cash flows for the three and nine months ended September 30, 2020 and 2019 (in thousands). All revenue in the table below relates to goods and services transferred at a point in time.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Revenue stream	2020		2019		2020		2019
Service charges on deposit accounts
Overdraft fees	$	282		405	$	847	$	1,132
Statement fees		50		52		156		153
Interchange revenue		616		589		1,693		1,724
ATM income		99		108		241		300
Other service charges		65		71		170		189
Total Service Charges		1,112		1,225		3,107		3,498
Trust		199		148		542		589
Brokerage and insurance		352		289		941		843
Other		95		80		261		267
Total	$	1,758	$	1,742	$	4,851	$	5,197

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Earnings per Share (Tables)

9 Months Ended

Sep. 30, 2020

Earnings per Share [Abstract]

Computation of Earnings per Share

The following table sets forth the computation of earnings per share.

	Three months ended				Nine months ended
	September 30,				September 30,
	2020		2019		2020		2019
Net income applicable to common stock	$	8,007	$	5,196	$	17,876	$	14,447
Basic earnings per share computation
Weighted average common shares outstanding		3,918,438		3,553,996		3,769,705		3,560,695
Earnings per share - basic	$	2.04	$	1.46	$	4.74	$	4.06
Diluted earnings per share computation
Weighted average common shares outstanding for basic earnings per share		3,918,438		3,553,996		3,769,705		3,560,695
Add: Dilutive effects of restricted stock		-		-		2,025		2,280
Weighted average common shares outstanding for dilutive earnings per share		3,918,438		3,553,996		3,771,730		3,562,975
Earnings per share - diluted	$	2.04	$	1.46	$	4.74	$	4.05

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Investments (Tables)

9 Months Ended

Sep. 30, 2020

Investments [Abstract]

Amortized Cost and Fair Value of Investment Securities

The amortized cost, gross unrealized gains and losses, and fair value of investment securities at September 30, 2020 and December 31, 2019 were as follows (in thousands):

September 30, 2020	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
U.S. agency securities	$	78,095	$	2,647	$	(44	)	$	80,698
U.S. treasury securities		27,430		737		-			28,167
Obligations of state and political subdivisions		89,678		2,297		(127	)		91,848
Corporate obligations		6,423		84		-			6,507
Mortgage-backed securities in government sponsored entities		78,925		1,829		(136	)		80,618
Total available-for-sale securities	$	280,551	$	7,594	$	(307	)	$	287,838
December 31, 2019
Available-for-sale securities:
U.S. agency securities	$	83,410	$	1,523	$	(70	)	$	84,863
U.S. treasury securities		27,394		267		-			27,661
Obligations of state and political subdivisions		60,667		865		(77	)		61,455
Corporate obligations		3,250		78		-			3,328
Mortgage-backed securities in government sponsored entities		63,086		468		(155	)		63,399
Total available-for-sale securities	$	237,807	$	3,201	$	(302	)	$	240,706

Unrealized Losses and Fair Value of Investments

The following table shows the Company’s gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time, which individual securities have been in a continuous unrealized loss position, at September 30, 2020 and December 31, 2019 (in thousands). As of September 30, 2020, the Company owned 30 securities whose fair value was less than their cost basis.

September 30, 2020	Less than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. agency securities	$	6,979	$	(44	)	$	-	$	-		$	6,979	$	(44	)
Obligations of state and  political subdivisions		11,257		(127	)		-		-			11,257		(127	)
Mortgage-backed securities in government sponsored entities		8,884		(98	)		5,779		(38	)		14,663		(136	)
Total securities	$	27,120	$	(269	)	$	5,779	$	(38	)	$	32,899	$	(307	)
December 31, 2019
U.S. agency securities	$	14,587	$	(63	)	$	13,094	$	(7	)	$	27,681	$	(70	)
Obligations of states and   political subdivisions		7,508		(75	)		1,507		(2	)		9,015		(77	)
Mortgage-backed securities in government sponsored entities		27,737		(97	)		9,559		(58	)		37,296		(155	)
Total securities	$	49,832	$	(235	)	$	24,160	$	(67	)	$	73,992	$	(302	)

Gross Gains and Losses on Available-for-sale Securities

Proceeds from sales of securities available-for-sale for the nine months ended September 30, 2020 and 2019 were $18,621,000 and $5,508,000, respectively. Proceeds from sales of securities available-for-sale for the three months ended September 30, 2020 and 2019 were $13,145,000 and $5,508,000, respectively. The gross gains and losses were as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2020			2019			2020			2019
Gross gains on available for sale securities	$	192		$	9		$	309		$	9
Gross losses on available for sale securities		(7	)		(1	)		(7	)		(1	)
Net gains	$	185		$	8		$	302		$	8

Unrealized Gains (Losses) Related to Equity Securities

The following table presents the net gains (losses) on the Company’s equity investments recognized in earnings during the three and nine month periods ended September 30, 2020 and 2019, and the portion of unrealized gains for the period that relates to equity investments held at September 30, 2020 and 2019 (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
Equity securities	2020			2019		2020			2019
Net gains (losses) recognized in equity securities during the period	$	(33	)	$	29	$	(276	)	$	70
Less: Net gains realized on the sale of equity securities during the period		68			-		68			-
Net unrealized gains (losses)	$	(101	)	$	29	$	(344	)	$	70

Amortized Cost and Fair Value of Debt Securities by Contractual Maturity

Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.   The amortized cost and fair value of debt securities (excludes equity securities) at September 30, 2020, by contractual maturity, are shown below (in thousands):

	Amortized Cost		Fair Value
Available-for-sale debt securities:
Due in one year or less	$	19,293	$	19,530
Due after one year through five years		65,451		68,561
Due after five years through ten years		58,962		60,506
Due after ten years		136,845		139,241
Total	$	280,551	$	287,838

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Loans (Tables)

9 Months Ended

Sep. 30, 2020

Loans [Abstract]

Loan Portfolio and Allowance for Loan Losses

The Company grants loans primarily to customers throughout north central, central and south central Pennsylvania and the southern tier of New York. The recently completed MidCoast acquisition has expanded our lending market into Wilmington and Dover, Delaware.   Although the Company had a diversified loan portfolio at September 30, 2020 and December 31, 2019, a substantial portion of its debtors’ ability to honor their contracts is dependent on the economic conditions within these regions. The following table summarizes the primary segments of the loan portfolio and how those segments are analyzed within the allowance for loan losses as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	208,084	$	1,041	$	20	$	207,023
Commercial		535,456		9,465		3,306		522,685
Agricultural		310,702		4,398		1,722		304,582
Construction		28,656		-		-		28,656
Consumer		30,625		15		-		30,610
Other commercial loans		129,731		1,603		-		128,128
Other agricultural loans		40,790		1,246		306		39,238
State and political subdivision loans		81,835		-		-		81,835
Total		1,365,879		17,768		5,354		1,342,757
Allowance for loan losses		15,169		791		-		14,378
Net loans	$	1,350,710	$	16,977	$	5,354	$	1,328,379

December 31, 2019	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	217,088	$	1,166	$	23	$	215,899
Commercial		342,023		11,537		1,210		329,276
Agricultural		311,464		3,782		-		307,682
Construction		15,519		-		-		15,519
Consumer		9,947		4		-		9,943
Other commercial loans		69,970		1,902		49		68,019
Other agricultural loans		55,112		1,281		-		53,831
State and political subdivision loans		94,446		-		-		94,446
Total		1,115,569		19,672		1,282		1,094,615
Allowance for loan losses		13,845		735		-		13,110
Net loans	$	1,101,724	$	18,937	$	1,282	$	1,081,505

Purchase Accounting Adjustments Related to Purchased Impaired Loans Acquired

The table below presents the components of the purchase accounting adjustments related to the purchased impaired loans acquired in the MidCoast Acquisition as of April 17, 2020 (in thousands):

	April 17, 2020
Contractually required principal and interest at acquisition	$	8,801
Non-accretable  discount		(2,966	)
Expected cash flows		5,835
Accretable discount	$	(966	)
Estimated fair value	$	4,869

Accretable Yield for Purchased Credit Impaired Loans

Changes in the accretable yield for PCI loans were as follows for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands):

	Three months ended September 30,						Nine months ended September 30,
	2020			2019			2020			2019
Balance at beginning of period	$	987		$	100		$	89		$	104
Acquisition of Midcoast		-			-			966			-
Accretion		(100	)		(10	)		(168	)		(14	)
Balance at end of period	$	887		$	90		$	887		$	90

Loans Acquired with Specific Evidence of Deterioration in Credit Quality

The following table presents additional information regarding loans acquired with specific evidence of deterioration in credit quality under ASC 310-30 (in thousands):

	September 30, 2020		December 31, 2019
Outstanding balance	$	9,479	$	4,072
Carrying amount		5,354		1,282

Impaired Loan Receivables with Associated Allowance Amount

The following table includes the recorded investment and unpaid principal balances for impaired loan receivables by class, excluding PCI loans, with the associated allowance amount, if applicable (in thousands):

September 30, 2020	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
Real estate loans:
Mortgages	$	1,125	$	609	$	296	$	905	$	20
Home Equity		159		77		59		136		9
Commercial		10,053		8,325		1,140		9,465		341
Agricultural		4,614		2,526		1,872		4,398		79
Consumer		15		3		12		15		12
Other commercial loans		2,225		1,243		360		1,603		181
Other agricultural loans		1,368		123		1,123		1,246		149
Total	$	19,559	$	12,906	$	4,862	$	17,768	$	791

December 31, 2019
Real estate loans:
Mortgages	$	1,212	$	794	$	223	$	1,017	$	20
Home Equity		170		83		66		149		12
Commercial		12,070		10,723		814		11,537		251
Agricultural		3,900		1,580		2,202		3,782		151
Consumer		4		4		-		4		-
Other commercial loans		2,517		1,555		347		1,902		147
Other agricultural loans		1,347		126		1,155		1,281		154
Total	$	21,220	$	14,865	$	4,807	$	19,672	$	735

The following tables includes the average balance of impaired loan receivables by class and the income recognized on these receivables for the three and nine month periods ended September 30, 2020 and 2019 (in thousands):

	For the Nine Months Ended
	September 30, 2020						September 30, 2019
	Average Recorded Investment		Interest Income Recognized		Interest Income Recognized Cash Basis		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized Cash Basis
Real estate loans:
Mortgages	$	998	$	15	$	-	$	1,075	$	12	$	-
Home Equity		142		5		-		108		4		-
Commercial		10,836		294		20		11,768		342		11
Agricultural		3,718		58		-		5,068		61		-
Consumer		3		-		-		2		-		-
Other commercial loans		1,757		2		-		2,088		1		-
Other agricultural loans		1,275		6		-		1,419		4		-
Total	$	18,729	$	380	$	20	$	21,528	$	424	$	11

	For the Three Months Ended
	September 30, 2020						September 30, 2019
	Average Recorded Investment		Interest Income Recognized		Interest Income Recognized Cash Basis		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized Cash Basis
Real estate loans:
Mortgages	$	900	$	5	$	-	$	1,048	$	3	$	-
Home Equity		138		2		-		143		2		-
Commercial		9,436		75		18		11,906		112		-
Agricultural		3,633		18		-		4,795		5		-
Consumer		5		-		-		4		-		-
Other commercial loans		1,626		-		-		2,073		-		-
Other agricultural loans		1,259		2		-		1,408		-		-
Total	$	16,997	$	102	$	18	$	21,377	$	122	$	-

Financing Receivable Credit Exposures by Internally Assigned Grades

The following tables represent credit exposures by internally assigned grades as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	514,291	$	10,727	$	10,400	$	38	$	-	$	535,456
Agricultural		287,998		11,882		10,822		-		-		310,702
Construction		28,656		-		-		-		-		28,656
Other commercial loans		124,563		1,239		3,843		86		-		129,731
Other agricultural loans		37,529		1,593		1,668		-		-		40,790
State and political subdivision loans		81,493		-		342		-		-		81,835
Total	$	1,074,530	$	25,441	$	27,075	$	124	$	-	$	1,127,170

December 31, 2019	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	329,831	$	4,305	$	7,848	$	39	$	-	$	342,023
Agricultural		287,044		14,261		10,159		-		-		311,464
Construction		15,519		-		-		-		-		15,519
Other commercial loans		66,880		984		2,042		64		-		69,970
Other agricultural loans		51,711		1,077		2,324		-		-		55,112
State and political subdivision loans		93,993		-		453		-		-		94,446
Total	$	844,978	$	20,627	$	22,826	$	103	$	-	$	888,534

For residential real estate mortgages, home equity and consumer loans, credit quality is monitored based on whether the loan is performing or non-performing, which is typically based on the aging status of the loan and payment activity, unless a specific action, such as bankruptcy, repossession, death or significant delay in payment occurs to raise awareness of a possible credit event. Non-performing loans include those loans that are considered nonaccrual, described in more detail below, and all loans past due 90 or more days and still accruing. The following table presents the recorded investment in those loan classes based on payment activity as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	149,171	$	1,466	$	20	$	150,657
Home Equity		57,407		20		-		57,427
Consumer		30,613		12		-		30,625
Total	$	237,191	$	1,498	$	20	$	238,709
December 31, 2019	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	156,151	$	904	$	23	$	157,078
Home Equity		59,950		60		-		60,010
Consumer		9,939		8		-		9,947
Total	$	226,040	$	972	$	23	$	227,035

Aging Analysis of Past Due Loan Receivables

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table includes an aging analysis of the recorded investment of past due loan receivables as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		PCI		Total Loan Receivables		90 Days or Greater and Accruing
Real estate loans:
Mortgages	$	736	$	208	$	811	$	1,755	$	148,882	$	20	$	150,657	$	622
Home Equity		100		43		18		161		57,266		-		57,427		-
Commercial		1,651		78		4,805		6,534		525,616		3,306		535,456		413
Agricultural		116		215		1,327		1,658		307,322		1,722		310,702		147
Construction		-		-		-		-		28,656		-		28,656		-
Consumer		142		33		12		187		30,438		-		30,625		12
Other commercial loans		169		-		1,491		1,660		128,071		-		129,731		-
Other agricultural loans		9		-		136		145		40,339		306		40,790		-
State and political subdivision loans		-		-		-		-		81,835		-		81,835		-
Total	$	2,923	$	577	$	8,600	$	12,100	$	1,348,425	$	5,354	$	1,365,879	$	1,194

Loans considered non-accrual	$	53	$	-	$	7,406	$	7,459	$	4,252	$	-	$	11,711
Loans still accruing		2,870		577		1,194		4,641		1,344,173		5,354		1,354,168
Total	$	2,923	$	577	$	8,600	$	12,100	$	1,348,425	$	5,354	$	1,365,879

December 31, 2019	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		PCI		Total Loan Receivables		90 Days or Greater and Accruing
Real estate loans:
Mortgages	$	581	$	57	$	319	$	957	$	156,098	$	23	$	157,078	$	1
Home Equity		334		11		56		401		59,609		-		60,010		1
Commercial		750		573		3,720		5,043		335,770		1,210		342,023		-
Agricultural		118		-		785		903		310,561		-		311,464		299
Construction		-		-		-		-		15,519		-		15,519		-
Consumer		113		10		8		131		9,816		-		9,947		2
Other commercial loans		217		71		1,946		2,234		67,687		49		69,970		184
Other agricultural loans		29		32		-		61		55,051		-		55,112		-
State and political subdivision loans		-		-		-		-		94,446		-		94,446		-
Total	$	2,142	$	754	$	6,834	$	9,730	$	1,104,557	$	1,282	$	1,115,569	$	487

Loans considered non-accrual	$	90	$	95	$	6,347	$	6,532	$	5,004	$	-	$	11,536
Loans still accruing		2,052		659		487		3,198		1,099,553		1,282		1,104,033
Total	$	2,142	$	754	$	6,834	$	9,730	$	1,104,557	$	1,282	$	1,115,569

Loan Receivables on Nonaccrual Status

The following table reflects the loan receivables, excluding PCI loans, on non-accrual status as of September 30, 2020 and December 31, 2019, respectively. The balances are presented by class of loan receivable (in thousands):

	September 30, 2020		December 31, 2019
Real estate loans:
Mortgages	$	844	$	903
Home Equity		20		59
Commercial		5,141		5,080
Agricultural		3,161		2,578
Consumer		-		6
Other commercial loans		1,551		1,837
Other agricultural loans		994		1,073
	$	11,711	$	11,536

Loan Modifications Related to COVID-19

The Company has elected to follow the loan modification guidance under Section 4013 of the CARES Act with regard to COVID-19 modifications made between March 1, 2020 and the earlier of either December 31, 2020 or the 60th day after the end of the COVID-19 national emergency. Under section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. A financial institution can then suspend the requirements under GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a TDR, and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting purposes. Similarly, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs. A modification of six months or less is considered to be a short-term loan modification. In response to the COVID-19 pandemic, the Company has prudently executed loan modifications for existing loan customers, which includes deferrals of interest and in certain cases deferrals of principal and interest. The following table presents information regarding loans which were subject to a loan modification related to COVID-19, with balances as of the date of modification and September 30, 2020, as well as the balance by modification type as of September 30, 2020.

	Number of loans		Balance as of Modification date		Number of loans as of September 30, 2020		Balance as of September 30, 2020		Principal and Interest Deferral		Principal Deferral		% of loans as of September 30, 2020
Real estate loans:
Mortgages		49	$	9,996		1	$	75	$	75	$	-		0.05	%
Home Equity		29		1,389		-		-		-		-		0.00	%
Commercial		259		144,647		9		17,712		13,039		4,673		3.31	%
Agricultural		50		20,421		2		2,368		-		2,368		0.76	%
Construction		3		1,178		-		-		-		-		0.00	%
Consumer		10		68		-		-		-		-		0.00	%
Other commercial loans		88		24,077		-		-		-		-		0.00	%
Other agricultural loans		46		3,347		-		-		-		-		0.00	%
Total		534	$	205,123		12	$	20,155	$	13,114	$	7,041		1.48	%

Troubled Debt Restructurings on Financing Receivables

Loan modifications that are considered TDRs completed during the three and nine months ended September 30, 2020 and 2019 were as follows (dollars in thousands):

	For the Three Months Ended September 30, 2020
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		1	$	-	$	276	$	-	$	276
Consumer		-		1		-		3		-		3
Total		-		2	$	-	$	279	$	-	$	279

	For the Nine Months Ended September 30, 2020
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		3		-		682		-		682
Agricultural		-		1		-		150		-		150
Consumer		-		1		-		3		-		3
Total		-		5	$	-	$	835	$	-	$	835

	For the Three Months Ended September 30, 2019
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		1	$	-	$	118	$	-	$	118
Consumer		-		1		-		3		-		3
Total		-		2	$	-	$	121	$	-	$	121

	For the Nine Months Ended September 30, 2019
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Mortgages		-		1	$	-	$	4	$	-	$	4
Home Equity		-		1		-		40		-		40
Commercial		-		5		-		918		-		918
Consumer		-		1		-		3		-		3
Total		-		8	$	-	$	965	$	-	$	965

Subsequent Default Recorded Investment

Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-accrual loan. Recidivism on modified loans occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans. The following table presents the recorded investment in loans that were modified as TDRs during each 12-month period prior to the current reporting periods, which began January 1, 2020 and 2019 (9 month periods) and July 1, 2020 and 2019 (3 month periods), respectively, and that subsequently defaulted during these reporting periods (dollars in thousands):

	For the Three Months Ended								For the Nine Months Ended
	September 30, 2020				September 30, 2019				September 30, 2020				September 30, 2019
	Number of contracts		Recorded investment		Number of contracts		Recorded investment		Number of contracts		Recorded investment		Number of contracts		Recorded investment
Real estate loans:
Commercial		1	$	110		-	$	-		1	$	110		1	$	542
Agricultural		-		-		-		-		-		-		1		1,439
Other agricultural loans		-		-		-		-		-		-		4		261
Total recidivism		1	$	110		-	$	-		1	$	110		6	$	2,242

Allowance for Loan Losses by Impairment Method

The following table segregates the allowance for loan losses (ALLL) into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of September 30, 2020 and December 31, 2019, respectively (in thousands):

	September 30, 2020						December 31, 2019
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
Real estate loans:
Residential	$	29	$	1,190	$	1,219	$	32	$	1,082	$	1,114
Commercial		341		4,965		5,306		251		4,298		4,549
Agricultural		79		4,727		4,806		151		4,871		5,022
Construction		-		85		85		-		43		43
Consumer		12		340		352		-		112		112
Other commercial loans		181		1,049		1,230		147		1,108		1,255
Other agricultural loans		149		586		735		154		807		961
State and political subdivision loans		-		514		514		-		536		536
Unallocated		-		922		922		-		253		253
Total	$	791	$	14,378	$	15,169	$	735	$	13,110	$	13,845

Roll forward of Allowance for Loan Losses by Portfolio Segment

The following tables roll forward the balance of the ALLL by portfolio segment for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands):

	For the three months ended September 30, 2020
	Balance at June 30, 2020		Charge-offs			Recoveries		Provision			Balance at September 30, 2020
Real estate loans:
Residential	$	1,206	$	-		$	-	$	13		$	1,219
Commercial		4,944		(220	)		3		579			5,306
Agricultural		5,061		(4	)		19		(270	)		4,806
Construction		81		-			-		4			85
Consumer		362		(12	)		3		(1	)		352
Other commercial loans		1,201		(1	)		4		26			1,230
Other agricultural loans		821		-			-		(86	)		735
State and political subdivision loans		547		-			-		(33	)		514
Unallocated		604		-			-		318			922
Total	$	14,827	$	(237	)	$	29	$	550		$	15,169

	For the three months ended September 30, 2019
	Balance at June 30, 2019		Charge-offs			Recoveries		Provision			Balance at September 30, 2019
Real estate loans:
Residential	$	1,066	$	(24	)	$	-	$	49		$	1,091
Commercial		4,400		-			-		241			4,641
Agricultural		4,532		-			-		180			4,712
Construction		36		-			-		(17	)		19
Consumer		118		(10	)		6		5			119
Other commercial loans		1,328		-			3		18			1,349
Other agricultural loans		741		-			-		128			869
State and political subdivision loans		539		-			-		(3	)		536
Unallocated		544		-			-		(201	)		343
Total	$	13,304	$	(34	)	$	9	$	400		$	13,679

	For the nine months ended September 30, 2020
	Balance at December 31, 2019		Charge-offs			Recoveries		Provision			Balance at September 30, 2020
Real estate loans:
Residential	$	1,114	$	-		$	-	$	105		$	1,219
Commercial		4,549		(221	)		37		941			5,306
Agricultural		5,022		(4	)		19		(231	)		4,806
Construction		43		-			-		42			85
Consumer		112		(30	)		15		255			352
Other commercial loans		1,255		(1	)		9		(33	)		1,230
Other agricultural loans		961		-			-		(226	)		735
State and political subdivision loans		536		-			-		(22	)		514
Unallocated		253		-			-		669			922
Total	$	13,845	$	(256	)	$	80	$	1,500		$	15,169

	For the nine months ended September 30, 2019
	Balance at December 31, 2018		Charge-offs			Recoveries		Provision			Balance at September 30, 2019
Real estate loans:
Residential	$	1,105	$	(24	)	$	-	$	10		$	1,091
Commercial		4,115		(293	)		-		819			4,641
Agricultural		4,264		-			-		448			4,712
Construction		58		-			-		(39	)		19
Consumer		120		(32	)		24		7			119
Other commercial loans		1,354		(38	)		8		25			1,349
Other agricultural loans		752		-			-		117			869
State and political subdivision loans		762		-			-		(226	)		536
Unallocated		354		-			-		(11	)		343
Total	$	12,884	$	(387	)	$	32	$	1,150		$	13,679

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Goodwill and Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2020

Goodwill and Other Intangible Assets [Abstract]

Gross Carrying Value and Accumulated Amortization of Intangible Assets

The following table provides the gross carrying value and accumulated amortization of intangible assets as of September 30, 2020 and December 31, 2019 (in thousands):

	September 30, 2020							December 31, 2019
	Gross carrying value		Accumulated amortization			Net carrying value		Gross carrying value		Accumulated amortization			Net carrying value
Amortized intangible assets (1):
MSRs	$	2,058	$	(1,220	)	$	838	$	1,718	$	(1,077	)	$	641
Core deposit intangibles		1,943		(1,243	)		700		1,786		(1,081	)		705
Covenant not to compete		125		(125	)		-		125		(125	)		-
Total amortized intangible assets	$	4,126	$	(2,588	)	$	1,538	$	3,629	$	(2,283	)	$	1,346
Unamortized intangible assets:
Goodwill	$	31,376						$	23,296

(1) Excludes fully amortized intangible assets

Future Amortization Expense for Amortized Intangible Assets

The following table provides the current year and estimated future amortization expense for amortized intangible assets for the next five years (in thousands). We based our projections of amortization expense shown below on existing asset balances at September 30, 2020. Future amortization expense may vary from these projections:

	MSRs		Core deposit intangibles		Covenant not to compete		Total
Three months ended September 30, 2020 (actual)	$	46	$	57	$	-	$	103
Nine months ended September 30, 2020 (actual)		144		162		-		306
Three months ended September 30, 2019 (actual)		44		58		8		110
Nine months ended September 30, 2019 (actual)		138		174		24		336
Estimate for year ending December 31,
Remaining 2020		60		55		-		115
2021		213		192		-		405
2022		168		156		-		324
2023		130		121		-		251
2024		98		85		-		183
Thereafter		169		91		-		260
Total	$	838	$	700	$	-	$	1,538

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Employee Benefit Plans (Tables)

9 Months Ended

Sep. 30, 2020

Employee Benefit Plans [Abstract]

Components of Net Periodic Benefit Costs

The following sets forth the components of net periodic benefit costs of the Pension Plan and the line item on the Consolidated Statement of Income where such amounts are included, for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019			Affected line item on the Consolidated Statement of Income
Service cost	$	82		$	78		$	247		$	256		Salary and Employee Benefits
Interest cost		83			123			249			401		Other Expenses
Expected return on plan assets		(215	)		(187	)		(646	)		(595	)	Other Expenses
Partial Settlement		-			-			307			-		Other Expenses
Net amortization and deferral		59			60			175			181		Other Expenses
Net periodic benefit cost	$	9		$	74		$	332		$	243

Restricted Stock Activity

The following table details the vesting, awarding and forfeiting of restricted stock during the three and nine months ended September 30, 2020:

	Three months				Nine months
	Unvested Shares		Weighted Average Market Price		Unvested Shares			Weighted Average Market Price
Outstanding, beginning of period		10,786	$	56.60		10,877		$	60.11
Granted		85		58.37		4,732			51.29
Forfeited		-		-		-			-
Vested		-		-		(4,738	)		(59.32	)
Outstanding, end of period		10,871	$	56.61		10,871		$	56.61

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Accumulated Comprehensive Income (Loss) (Tables)

9 Months Ended

Sep. 30, 2020

Accumulated Comprehensive Income (Loss) [Abstract]

Changes in Accumulated Other Comprehensive Loss by Component, Net of Tax

The following tables present the changes in accumulated other comprehensive income (loss) by component, net of tax, for the three and nine months ended September 30, 2020 and 2019 (in thousands):

	Nine months ended September 30, 2020
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Unrealized loss on interest rate swap (a)			Total
Balance as of December 31, 2019	$	2,290		$	(2,919	)	$	-		$	(629	)
Other comprehensive income (loss) before reclassifications (net of tax)		3,705			-			(353	)		3,352
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)		(239	)		381			-			142
Net current period other comprehensive income (loss)		3,466			381			(353	)		3,494
Balance as of September 30, 2020	$	5,756		$	(2,538	)	$	(353	)	$	2,865

	Nine months ended September 30, 2019
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Unrealized loss on interest rate swap (a)		Total
Balance as of December 31, 2018	$	(973	)	$	(2,948	)	$	-	$	(3,921	)
Other comprehensive income (loss) before reclassifications (net of tax)		3,495			-			-		3,495
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)		(6	)		143			-		137
Net current period other comprehensive income (loss)		3,489			143			-		3,632
Balance as of September 30, 2019	$	2,516		$	(2,805	)	$	-	$	(289	)

	Three months ended September 30, 2020
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Unrealized loss on interest rate swap (a)			Total
Balance as of June 30, 2020	$	5,938		$	(2,585	)	$	(446	)	$	2,907
Other comprehensive income (loss) before reclassifications (net of tax)		(35	)		-			93			58
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)		(147	)		47			-			(100	)
Net current period other comprehensive income (loss)		(182	)		47			93			(42	)
Balance as of September 30, 2020	$	5,756		$	(2,538	)	$	(353	)	$	2,865

	Three months ended September 30, 2019
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Unrealized loss on interest rate swap (a)		Total
Balance as of June 30, 2019	$	2,515		$	(2,852	)	$	-	$	(337	)
Other comprehensive income (loss) before reclassifications (net of tax)		7			-			-		7
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)		(6	)		47			-		41
Net current period other comprehensive income (loss)		1			47			-		48
Balance as of September 30, 2019	$	2,516		$	(2,805	)	$	-	$	(289	)

(a) Amounts in parentheses indicate debits on the Consolidated Balance Sheet.

Significant Amounts Reclassified Out of Each Component of Accumulated Other Comprehensive Income

The following table presents the significant amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2020 and 2019 (in thousands):

Details about accumulated other comprehensive income (loss)	Amount reclassified from accumulated comprehensive income (loss) (a)						Affected line item in the Consolidated Statement of  Income
	Three Months Ended September 30, 2020
	2020			2019
Unrealized gains and losses on available for sale securities
	$	185		$	8		Available for sale securities gains, net
		(38	)		(2	)	Provision for income taxes
	$	147		$	6
Defined benefit pension items
	$	(59	)	$	(60	)	Other expenses
		12			13		Provision for income taxes
	$	(47	)	$	(47	)
Total reclassifications	$	100		$	(41	)

	Nine Months Ended September 30,
	2020			2019
Unrealized gains and losses on available for sale securities
	$	302		$	8		Available for sale securities gains, net
		(63	)		(2	)	Provision for income taxes
	$	239		$	6
Defined benefit pension items
	$	(482	)	$	(181	)	Other expenses
		101			38		Provision for income taxes
	$	(381	)	$	(143	)
Total reclassifications	$	(142	)	$	(137	)

(a) Amounts in parentheses indicate expenses and other amounts indicate income on the Consolidated Statement of Income

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2020

Fair Value Measurements [Abstract]

Assets Measured at Fair Value on a Recurring Basis

The following tables present the assets and liabilities reported on the Consolidated Balance Sheet at their fair value on a recurring basis as of September 30, 2020 and December 31, 2019 by level within the fair value hierarchy (in thousands). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

September 30, 2020	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Assets
Equity securities	$	1,696	$	-	$	-	$	1,696
Available for sale securities:
U.S. Agency securities		-		80,698		-		80,698
U.S. Treasury securities		28,167		-		-		28,167
Obligations of state and    political subdivisions		-		91,848		-		91,848
Corporate obligations		-		6,507		-		6,507
Mortgage-backed securities in    government sponsored entities		-		80,618		-		80,618
Liabilities
Interest rate swaps		-		448		-		448
December 31, 2019	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Assets
Equity securities	$	701	$	-	$	-	$	701
Available for sale securities:
U.S. Agency securities		-		84,863		-		84,863
U.S. Treasuries securities		27,661		-		-		27,661
Obligations of state and    political subdivisions		-		61,455		-		61,455
Corporate obligations		-		3,328		-		3,328
Mortgage-backed securities in       government sponsored entities		-		63,399		-		63,399

Assets Measured at Fair Value on Non-recurring Basis

Assets measured at fair value on a nonrecurring basis as of September 30, 2020 and December 31, 2019 are included in the table below (in thousands):

September 30, 2020	Level I		Level II		Level III		Total
Impaired Loans	$	-	$	-	$	4,072	$	4,072
Other real estate owned		-		-		2,692		2,692
December 31, 2019	Level I		Level II		Level III		Total
Impaired Loans	$	-	$	-	$	3,860	$	3,860
Other real estate owned		-		-		3,299		3,299

Significant Unobservable Inputs Used in Fair Value Measurement Process

The following table provides a listing of the significant unobservable inputs used in the fair value measurement process for items valued utilizing Level III techniques (dollars in thousands).

September 30, 2020	Fair Value		Valuation Technique(s)	Unobservable input	Range			Weighted average
Impaired Loans	$	4,072	Appraised Collateral Values	Discount for time since appraisal		0-100	%		17.70	%
				Selling costs		5%-10	%		9.25	%
				Holding period	0 - 12 months			11.86 months
Other real estate owned		2,692	Appraised Collateral Values	Discount for time since appraisal		10-30	%		18.79	%

December 31, 2019	Fair Value		Valuation Technique(s)	Unobservable input	Range			Weighted average
Impaired Loans		3,860	Appraised Collateral Values	Discount for time since appraisal		0-100	%		19.22	%
				Selling costs		5%-10	%		9.26	%
				Holding period	6 - 12 months			11.76 months
Other real estate owned		3,299	Appraised Collateral Values	Discount for time since appraisal		5-43	%		16.37	%

Carrying Amount and Fair Value of Financial Instruments

The carrying amount and fair value of the Company’s financial instruments that are not required to be measured or reported at fair value on a recurring basis are as follows (in thousands):

September 30, 2020	Carrying Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Interest bearing time deposits with other banks	$	13,758	$	14,406	$	-	$	-	$	14,406
Loans held for sale		19,320		19,320		-		-		19,320
Net loans		1,350,710		1,369,709		-		-		1,369,709
Financial liabilities:
Deposits		1,552,753		1,558,516		1,168,405		-		390,111
Borrowed funds		99,602		99,616		-		-		99,616

December 31, 2019	Carrying Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Interest bearing time deposits with other banks	$	14,256	$	14,635	$	-	$	-	$	14,635
Loans held for sale		815		815		-		-		815
Net loans		1,101,724		1,091,006		-		-		1,091,006
Financial liabilities:
Deposits		1,211,118		1,211,200		938,387		-		272,813
Borrowed funds		85,117		84,581		-		-		84,581

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Acquisition of MidCoast Community Bancorp, Inc (Tables)

9 Months Ended

Sep. 30, 2020

Business Acquisition [Line Items]

Summarizes the Purchase Price of Midcoast

The following table summarizes the purchase of MidCoast as of April 17, 2020:

(In Thousands, Except Per Share Data)
Purchase Price Consideration in Common Stock
Citizens Financial Services, Inc. shares issued		373,356
Value assigned to Citizens Financial Services, Inc. common share	$	51.50
Purchase price assigned to MidCoast common shares exchanged for Citizens Financial Services, Inc.				$	19,227
Purchase Price Consideration - Cash for Common Stock
Purchase price assigned to The First National Bank of Fredericksburg common shares exchanged for cash					7,616
Total Purchase Price					26,843
Net Assets Acquired:
MidCoast Community Bancorp, Inc shareholders’ equity	$	24,330
Adjustments to reflect assets acquired at fair value:
Investments
Loans
Interest rate		1,424
General credit		(4,375	)
Specific credit - non-amortizing		(2,135	)
Specific credit - amortizing		(966	)
Core deposit intangible		157
Owned premises		(426	)
Other assets		65
Deferred tax assets		2,217
Adjustments to reflect liabilities acquired at fair value:
Time deposits		(1,018	)
Borrowings		(497	)
Other liabilities		(13	)
					18,763
Goodwill resulting from merger				$	8,080

Asset Acquired and Liability Assumed

The following condensed statement reflects the amounts recognized as of the acquisition date for each major class of asset acquired and liability assumed:

(In Thousands)
Total purchase price				$	26,843
Net assets acquired:
Cash and cash equivalents	$	8,637
Loans		223,235
Premises and equipment, net		1,787
Accrued interest receivable		586
Bank-owned life insurance		3,766
Intangibles		157
Deferred tax asset		3,402
Other assets		2,878
Time deposits		(123,841	)
Deposits other than time deposits		(84,985	)
Accrued interest payable		(164	)
Borrowings		(15,497	)
Other liabilities		(1,198	)
					18,763
Goodwill resulting from the MidCoast merger				$	8,080

Estimated Future Amortization Expense

The following table provides the current year and estimated future amortization expense for amortized intangible assets for the next five years (in thousands). We based our projections of amortization expense shown below on existing asset balances at September 30, 2020. Future amortization expense may vary from these projections:

	MSRs		Core deposit intangibles		Covenant not to compete		Total
Three months ended September 30, 2020 (actual)	$	46	$	57	$	-	$	103
Nine months ended September 30, 2020 (actual)		144		162		-		306
Three months ended September 30, 2019 (actual)		44		58		8		110
Nine months ended September 30, 2019 (actual)		138		174		24		336
Estimate for year ending December 31,
Remaining 2020		60		55		-		115
2021		213		192		-		405
2022		168		156		-		324
2023		130		121		-		251
2024		98		85		-		183
Thereafter		169		91		-		260
Total	$	838	$	700	$	-	$	1,538

Pro Forma Information

The following table presents financial information regarding the former MidCoast operations included in our Consolidated Statement of Income from the date of acquisition through September 30, 2020 under the column “Actual from Acquisition Date through September 30, 2020”.  In addition, the following table presents unaudited pro forma information as if the acquisition of MidCoast had occurred on January 1, 2019 under the “Pro Forma” columns.  The table below has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisition occurred as of the beginning of the periods presented, nor is it indicative of future results. Furthermore, the unaudited proforma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings as a result of the integration and consolidation of the acquisition.  Merger and acquisition integration costs and amortization of fair value adjustments are included in the numbers below.

			Pro Forma for
	Actual from Acquisition		Three Months Ended				Nine Months Ended
	Date Through		September 30,				September 30,
(In Thousands, Except Per Share Data)	September 30, 2020		2020		2019		2020		2019
Net interest income	$	5,387	$	16,052	$	15,404	$	47,642	$	44,918
Non-interest income		107		3,538		2,239		7,779		6,416
Net income		3,035		7,678		5,849		16,306		16,649
Pro forma earnings per share:
Basic			$	1.96	$	1.49	$	4.16	$	4.23
Diluted			$	1.96	$	1.49	$	4.16	$	4.23

MidCoast Community Bancorp, Inc [Member]

Business Acquisition [Line Items]

Estimated Future Amortization Expense

As of September 30, 2020, the current year and estimated future amortization expense for the core deposit intangibles was (in thousands):

	Core deposit intangibles
Three months ended September 30, 2020 (actual)	$	7
Nine months ended September 30, 2020 (actual)		12
Estimate for year ending December 31,
Remaining 2020		7
2021		27
2022		24
2023		21
2024		18
Thereafter		48
Total	$	145

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Revenue Recognition (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Revenue from Customers [Abstract]
Revenue from customers	$ 1,758	$ 1,742	$ 4,851	$ 5,197
Service Charges [Member]
Revenue from Customers [Abstract]
Revenue from customers	1,112	1,225	3,107	3,498
Overdraft Fees [Member]
Revenue from Customers [Abstract]
Revenue from customers	282	405	847	1,132
Statement Fees [Member]
Revenue from Customers [Abstract]
Revenue from customers	50	52	156	153
Interchange Revenue [Member]
Revenue from Customers [Abstract]
Revenue from customers	616	589	1,693	1,724
ATM Income [Member]
Revenue from Customers [Abstract]
Revenue from customers	99	108	241	300
Other Service Charges [Member]
Revenue from Customers [Abstract]
Revenue from customers	65	71	170	189
Trust [Member]
Revenue from Customers [Abstract]
Revenue from customers	199	148	542	589
Brokerage and Insurance [Member]
Revenue from Customers [Abstract]
Revenue from customers	352	289	941	843
Other [Member]
Revenue from Customers [Abstract]
Revenue from customers	$ 95	$ 80	$ 261	$ 267

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Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Earnings per share basic and diluted [Abstract]
Net income applicable to common stock	$ 8,007	$ 5,196	$ 17,876	$ 14,447
Basic earnings per share computation [Abstract]
Weighted average common shares outstanding (in shares)	3,918,438	3,553,996	3,769,705	3,560,695
Earnings per share - basic (in dollars per share)	$ 2.04	$ 1.46	$ 4.74	$ 4.06
Diluted earnings per share computation [Abstract]
Weighted average common shares outstanding for basic earnings per share (in shares)	3,918,438	3,553,996	3,769,705	3,560,695
Add: Dilutive effects of restricted stock (in shares)	0	0	2,025	2,280
Weighted average common shares outstanding for dilutive earnings per share (in shares)	3,918,438	3,553,996	3,771,730	3,562,975
Earnings per share - diluted (in dollars per share)	$ 2.04	$ 1.46	$ 4.74	$ 4.05
Restricted Stock [Member]
Antidilutive Securities [Abstract]
Antidilutive restricted stock excluded from net income per share calculations (in shares)	9,480	9,013	5,347	4,453
Restricted Stock [Member] | Minimum [Member]
Antidilutive Securities [Abstract]
Antidilutive stock share price range (in dollars per share)	$ 51.14	$ 50.65	$ 58.37	$ 50.65
Restricted Stock [Member] | Maximum [Member]
Antidilutive Securities [Abstract]
Antidilutive stock share price range (in dollars per share)	$ 62.93	$ 62.93	$ 62.93	$ 62.93

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Investments, Amortized Cost, Gross Unrealized Gains and Losses and Fair Value of Investment (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Debt Securities [Abstract]
Amortized cost	$ 280,551	$ 237,807
Gross unrealized gains	7,594	3,201
Gross unrealized losses	(307)	(302)
Fair value	287,838	240,706
U.S. Agency Securities [Member]
Debt Securities [Abstract]
Amortized cost	78,095	83,410
Gross unrealized gains	2,647	1,523
Gross unrealized losses	(44)	(70)
Fair value	80,698	84,863
U.S. Treasury Securities [Member]
Debt Securities [Abstract]
Amortized cost	27,430	27,394
Gross unrealized gains	737	267
Gross unrealized losses	0	0
Fair value	28,167	27,661
Obligations of State and Political Subdivisions [Member]
Debt Securities [Abstract]
Amortized cost	89,678	60,667
Gross unrealized gains	2,297	865
Gross unrealized losses	(127)	(77)
Fair value	91,848	61,455
Corporate Obligations [Member]
Debt Securities [Abstract]
Amortized cost	6,423	3,250
Gross unrealized gains	84	78
Gross unrealized losses	0	0
Fair value	6,507	3,328
Mortgage-backed Securities in Government Sponsored Entities [Member]
Debt Securities [Abstract]
Amortized cost	78,925	63,086
Gross unrealized gains	1,829	468
Gross unrealized losses	(136)	(155)
Fair value	$ 80,618	$ 63,399

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Investments, Gross Unrealized Losses and Fair Value and Net Unrealized Gains (Losses) (Details) $ in Thousands	Sep. 30, 2020 USD ($) Security	Dec. 31, 2019 USD ($)
Available-for-sale, Debt Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than twelve months, Fair value	$ 27,120	$ 49,832
Twelve months or greater, Fair value	5,779	24,160
Total, Fair value	32,899	73,992
Less than twelve months, Gross unrealized losses	(269)	(235)
Twelve months or greater, Gross unrealized losses	(38)	(67)
Total, Gross Unrealized Losses	$ (307)	(302)
Number of securities owned with fair value less than cost | Security	30
U.S. Agency Securities [Member]
Available-for-sale, Debt Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than twelve months, Fair value	$ 6,979	14,587
Twelve months or greater, Fair value	0	13,094
Total, Fair value	6,979	27,681
Less than twelve months, Gross unrealized losses	(44)	(63)
Twelve months or greater, Gross unrealized losses	0	(7)
Total, Gross Unrealized Losses	(44)	(70)
Obligations of State and Political Subdivisions [Member]
Available-for-sale, Debt Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than twelve months, Fair value	11,257	7,508
Twelve months or greater, Fair value	0	1,507
Total, Fair value	11,257	9,015
Less than twelve months, Gross unrealized losses	(127)	(75)
Twelve months or greater, Gross unrealized losses	0	(2)
Total, Gross Unrealized Losses	(127)	(77)
Mortgage-backed Securities in Government Sponsored Entities [Member]
Available-for-sale, Debt Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than twelve months, Fair value	8,884	27,737
Twelve months or greater, Fair value	5,779	9,559
Total, Fair value	14,663	37,296
Less than twelve months, Gross unrealized losses	(98)	(97)
Twelve months or greater, Gross unrealized losses	(38)	(58)
Total, Gross Unrealized Losses	$ (136)	$ (155)

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Investments, Gross Gains and Losses, Available for Sale Securities (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Investments [Abstract]
Proceeds from sale of securities available-for-sale	$ 13,145,000	$ 5,508,000	$ 18,621,000	$ 5,508,000
Gross gains and losses on available-for-sale securities [Abstract]
Gross gains on available for sale securities	192,000	9,000	309,000	9,000
Gross losses on available for sale securities	(7,000)	(1,000)	(7,000)	(1,000)
Net gains	185,000	8,000	302,000	8,000
Equity securities [Abstract]
Net gains (losses) recognized in equity securities during the period	(33,000)	29,000	(276,000)	70,000
Less: Net gains realized on the sale of equity securities during the period	68,000	0	68,000	0
Net unrealized gains (losses)	(101,000)	$ 29,000	(344,000)	$ 70,000
Investment securities pledged as collateral	$ 250,200,000		$ 250,200,000		$ 209,100,000

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Investments, Debt Securities, Amortized Cost and Fair Value by Maturity (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Available-for-Sale Debt Securities, Amortized Cost [Abstract]
Due in one year or less	$ 19,293
Due after one year through five years	65,451
Due after five years through ten years	58,962
Due after ten years	136,845
Amortized cost	280,551	$ 237,807
Available-for-Sale Debt Securities, Fair Value [Abstract]
Due in one year or less	19,530
Due after one year through five years	68,561
Due after five years through ten years	60,506
Due after ten years	139,241
Fair value	$ 287,838	$ 240,706

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Loans, Primary Segments Portfolio and Accretable Yield for PCI Loans (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Apr. 17, 2020	Dec. 31, 2019
Segments of loan portfolio and allowance for loan losses [Abstract]
Total loan receivables	$ 1,365,879,000		$ 1,365,879,000			$ 1,115,569,000
Individually evaluated for impairment	17,768,000		17,768,000			19,672,000
Loans acquired with deteriorated credit quality	5,354,000		5,354,000			1,282,000
Collectively evaluated for impairment	1,342,757,000		1,342,757,000			1,094,615,000
Loans And Leases Receivable, Allowance For Loan Losses [Abstract]
Allowance for loan losses	15,169,000		15,169,000			13,845,000
Individually evaluated for impairment	791,000		791,000			735,000
Allowance for loan losses related to loans acquired with deteriorated credit quality	0		0			0
Collectively evaluated for impairment	14,378,000		14,378,000			13,110,000
Loans and Leases Receivable, Net Amount [Abstract]
Net loans	1,350,710,000		1,350,710,000			1,101,724,000
Net loans, individually evaluated for impairment	16,977,000		16,977,000			18,937,000
Net loans, loans acquired with deteriorated credit quality	5,354,000		5,354,000			1,282,000
Net loans, collectively evaluated for impairment	1,328,379,000		1,328,379,000			1,081,505,000
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities Acquired During Period [Line Items]
Unpaid principal balance	19,559,000		19,559,000			21,220,000
Changes in the accretable yield for purchased credit-impaired loans [Roll Forward]
Balance at beginning of period	987,000	$ 100,000	89,000	$ 104,000
Acquisition of Midcoast	0	0	966,000	0
Accretion	(100,000)	(10,000)	(168,000)	(14,000)
Balance at end of period	887,000	$ 90,000	887,000	$ 90,000
Loans acquired with specific evidence of deterioration in credit quality [Abstract]
Outstanding balance	9,479,000		9,479,000			4,072,000
Carrying amount	5,354,000		5,354,000			1,282,000
COVID-19 [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Outstanding principal balances	53,900,000		53,900,000
Loans and Leases Receivable, Net Amount [Abstract]
Proceeds from loans receivable	2,100,000		$ 2,100,000
Minimum [Member]
Loans and Leases Receivable, Net Amount [Abstract]
Number of days past for loan to be considered impaired, Minimum			90 days
First Mortgage [Member] | Minimum [Member]
Loans and Leases Receivable, Net Amount [Abstract]
Period of mortgage on real estate			15 years
First Mortgage [Member] | Maximum [Member]
Loans and Leases Receivable, Net Amount [Abstract]
Period of mortgage on real estate			30 years
Second Mortgage [Member] | Maximum [Member]
Loans and Leases Receivable, Net Amount [Abstract]
Period of mortgage on real estate			15 years
Real Estate Loans [Member] | Residential [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total loan receivables	208,084,000		$ 208,084,000			217,088,000
Individually evaluated for impairment	1,041,000		1,041,000			1,166,000
Loans acquired with deteriorated credit quality	20,000		20,000			23,000
Collectively evaluated for impairment	207,023,000		207,023,000			215,899,000
Loans And Leases Receivable, Allowance For Loan Losses [Abstract]
Individually evaluated for impairment	29,000		29,000			32,000
Collectively evaluated for impairment	1,190,000		1,190,000			1,082,000
Real Estate Loans [Member] | Commercial [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total loan receivables	535,456,000		535,456,000			342,023,000
Individually evaluated for impairment	9,465,000		9,465,000			11,537,000
Loans acquired with deteriorated credit quality	3,306,000		3,306,000			1,210,000
Collectively evaluated for impairment	522,685,000		522,685,000			329,276,000
Loans And Leases Receivable, Allowance For Loan Losses [Abstract]
Individually evaluated for impairment	341,000		341,000			251,000
Collectively evaluated for impairment	4,965,000		4,965,000			4,298,000
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities Acquired During Period [Line Items]
Unpaid principal balance	10,053,000		10,053,000			12,070,000
Real Estate Loans [Member] | Agricultural [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total loan receivables	310,702,000		310,702,000			311,464,000
Individually evaluated for impairment	4,398,000		4,398,000			3,782,000
Loans acquired with deteriorated credit quality	1,722,000		1,722,000			0
Collectively evaluated for impairment	304,582,000		304,582,000			307,682,000
Loans And Leases Receivable, Allowance For Loan Losses [Abstract]
Individually evaluated for impairment	79,000		79,000			151,000
Collectively evaluated for impairment	4,727,000		4,727,000			4,871,000
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities Acquired During Period [Line Items]
Unpaid principal balance	4,614,000		4,614,000			3,900,000
Real Estate Loans [Member] | Construction [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total loan receivables	28,656,000		28,656,000			15,519,000
Individually evaluated for impairment	0		0			0
Loans acquired with deteriorated credit quality	0		0			0
Collectively evaluated for impairment	28,656,000		28,656,000			15,519,000
Loans And Leases Receivable, Allowance For Loan Losses [Abstract]
Individually evaluated for impairment	0		0			0
Collectively evaluated for impairment	85,000		85,000			43,000
Consumer [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total loan receivables	30,625,000		30,625,000			9,947,000
Individually evaluated for impairment	15,000		15,000			4,000
Loans acquired with deteriorated credit quality	0		0			0
Collectively evaluated for impairment	30,610,000		30,610,000			9,943,000
Loans And Leases Receivable, Allowance For Loan Losses [Abstract]
Individually evaluated for impairment	12,000		12,000			0
Collectively evaluated for impairment	340,000		340,000			112,000
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities Acquired During Period [Line Items]
Unpaid principal balance	15,000		15,000			4,000
Other Commercial Loans [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total loan receivables	129,731,000		129,731,000			69,970,000
Individually evaluated for impairment	1,603,000		1,603,000			1,902,000
Loans acquired with deteriorated credit quality	0		0			49,000
Collectively evaluated for impairment	128,128,000		128,128,000			68,019,000
Loans And Leases Receivable, Allowance For Loan Losses [Abstract]
Individually evaluated for impairment	181,000		181,000			147,000
Collectively evaluated for impairment	1,049,000		1,049,000			1,108,000
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities Acquired During Period [Line Items]
Unpaid principal balance	2,225,000		2,225,000			2,517,000
Other Agricultural Loans [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total loan receivables	40,790,000		40,790,000			55,112,000
Individually evaluated for impairment	1,246,000		1,246,000			1,281,000
Loans acquired with deteriorated credit quality	306,000		306,000			0
Collectively evaluated for impairment	39,238,000		39,238,000			53,831,000
Loans And Leases Receivable, Allowance For Loan Losses [Abstract]
Individually evaluated for impairment	149,000		149,000			154,000
Collectively evaluated for impairment	586,000		586,000			807,000
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities Acquired During Period [Line Items]
Unpaid principal balance	1,368,000		1,368,000			1,347,000
State and Political Subdivision Loans [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total loan receivables	81,835,000		81,835,000			94,446,000
Individually evaluated for impairment	0		0			0
Loans acquired with deteriorated credit quality	0		0			0
Collectively evaluated for impairment	81,835,000		81,835,000			94,446,000
Loans And Leases Receivable, Allowance For Loan Losses [Abstract]
Individually evaluated for impairment	0		0			0
Collectively evaluated for impairment	514,000		514,000			$ 536,000
MidCoast Community Bancorp, Inc [Member]
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities Acquired During Period [Line Items]
Unpaid principal balance					$ 8,005,000
Purchase accounting adjustments related to purchased impaired loans [Abstract]
Contractually required principal and interest at acquisition					8,801,000
Non-accretable discount					(2,966,000)
Expected cash flows					5,835,000
Accretable discount					(966,000)
Estimated fair value					$ 4,869,000
Loans acquired with specific evidence of deterioration in credit quality [Abstract]
Carrying amount	$ 4,654,000		$ 4,654,000

XML

Loans, Impaired Financing Receivable (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	$ 19,559		$ 19,559		$ 21,220
Impaired Financing Receivable, Recorded Investment [Abstract]
Recorded Investment With No Allowance	12,906		12,906		14,865
Recorded Investment With Allowance	4,862		4,862		4,807
Total Recorded Investment	17,768		17,768		19,672
Related Allowance	791		791		735
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Average Recorded Investment	16,997	$ 21,377	18,729	$ 21,528
Interest Income Recognized	102	122	380	424
Interest Income Recognized Cash Basis	18	0	20	11
Real Estate Loans [Member] | Mortgages [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	1,125		1,125		1,212
Impaired Financing Receivable, Recorded Investment [Abstract]
Recorded Investment With No Allowance	609		609		794
Recorded Investment With Allowance	296		296		223
Total Recorded Investment	905		905		1,017
Related Allowance	20		20		20
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Average Recorded Investment	900	1,048	998	1,075
Interest Income Recognized	5	3	15	12
Interest Income Recognized Cash Basis	0	0	0	0
Real Estate Loans [Member] | Home Equity [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	159		159		170
Impaired Financing Receivable, Recorded Investment [Abstract]
Recorded Investment With No Allowance	77		77		83
Recorded Investment With Allowance	59		59		66
Total Recorded Investment	136		136		149
Related Allowance	9		9		12
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Average Recorded Investment	138	143	142	108
Interest Income Recognized	2	2	5	4
Interest Income Recognized Cash Basis	0	0	0	0
Real Estate Loans [Member] | Commercial [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	10,053		10,053		12,070
Impaired Financing Receivable, Recorded Investment [Abstract]
Recorded Investment With No Allowance	8,325		8,325		10,723
Recorded Investment With Allowance	1,140		1,140		814
Total Recorded Investment	9,465		9,465		11,537
Related Allowance	341		341		251
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Average Recorded Investment	9,436	11,906	10,836	11,768
Interest Income Recognized	75	112	294	342
Interest Income Recognized Cash Basis	18	0	20	11
Real Estate Loans [Member] | Agricultural [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	4,614		4,614		3,900
Impaired Financing Receivable, Recorded Investment [Abstract]
Recorded Investment With No Allowance	2,526		2,526		1,580
Recorded Investment With Allowance	1,872		1,872		2,202
Total Recorded Investment	4,398		4,398		3,782
Related Allowance	79		79		151
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Average Recorded Investment	3,633	4,795	3,718	5,068
Interest Income Recognized	18	5	58	61
Interest Income Recognized Cash Basis	0	0	0	0
Consumer [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	15		15		4
Impaired Financing Receivable, Recorded Investment [Abstract]
Recorded Investment With No Allowance	3		3		4
Recorded Investment With Allowance	12		12		0
Total Recorded Investment	15		15		4
Related Allowance	12		12		0
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Average Recorded Investment	5	4	3	2
Interest Income Recognized	0	0	0	0
Interest Income Recognized Cash Basis	0	0	0	0
Other Commercial Loans [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	2,225		2,225		2,517
Impaired Financing Receivable, Recorded Investment [Abstract]
Recorded Investment With No Allowance	1,243		1,243		1,555
Recorded Investment With Allowance	360		360		347
Total Recorded Investment	1,603		1,603		1,902
Related Allowance	181		181		147
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Average Recorded Investment	1,626	2,073	1,757	2,088
Interest Income Recognized	0	0	2	1
Interest Income Recognized Cash Basis	0	0	0	0
Other Agricultural Loans [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	1,368		1,368		1,347
Impaired Financing Receivable, Recorded Investment [Abstract]
Recorded Investment With No Allowance	123		123		126
Recorded Investment With Allowance	1,123		1,123		1,155
Total Recorded Investment	1,246		1,246		1,281
Related Allowance	149		149		$ 154
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Average Recorded Investment	1,259	1,408	1,275	1,419
Interest Income Recognized	2	0	6	4
Interest Income Recognized Cash Basis	$ 0	$ 0	$ 0	$ 0

XML

Loans, Credit Quality Indicator (Details) - USD ($)	9 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
Financing Receivable by credit exposure [Abstract]
Total	$ 238,709,000	$ 227,035,000
Minimum [Member]
Financing Receivable [Abstract]
Amount over which all relationships to be reviewed, minimum	$ 500,000
Percentage of dollar volume of commercial loan portfolio to be reviewed	50.00%
Amount over which all new loans to be reviewed	$ 1,000,000.0
Amount over which all relationships to be reviewed	1,000,000.0
Amount which is 30 days past due to be reviewed for all aggregate loan relationships	750,000
Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	535,456,000	342,023,000
Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	310,702,000	311,464,000
Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	28,656,000	15,519,000
Real Estate Loans [Member] | Mortgages [Member]
Financing Receivable by credit exposure [Abstract]
Total	150,657,000	157,078,000
Real Estate Loans [Member] | Home Equity [Member]
Financing Receivable by credit exposure [Abstract]
Total	57,427,000	60,010,000
Consumer [Member]
Financing Receivable by credit exposure [Abstract]
Total	30,625,000	9,947,000
Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	129,731,000	69,970,000
Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	40,790,000	55,112,000
State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	81,835,000	94,446,000
Pass [Member]
Financing Receivable by credit exposure [Abstract]
Total	1,074,530,000	844,978,000
Pass [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	514,291,000	329,831,000
Pass [Member] | Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	287,998,000	287,044,000
Pass [Member] | Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	28,656,000	15,519,000
Pass [Member] | Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	124,563,000	66,880,000
Pass [Member] | Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	37,529,000	51,711,000
Pass [Member] | State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	81,493,000	93,993,000
Special Mention [Member]
Financing Receivable by credit exposure [Abstract]
Total	25,441,000	20,627,000
Special Mention [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	10,727,000	4,305,000
Special Mention [Member] | Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	11,882,000	14,261,000
Special Mention [Member] | Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Special Mention [Member] | Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	1,239,000	984,000
Special Mention [Member] | Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	1,593,000	1,077,000
Special Mention [Member] | State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Substandard [Member]
Financing Receivable by credit exposure [Abstract]
Total	27,075,000	22,826,000
Substandard [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	10,400,000	7,848,000
Substandard [Member] | Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	10,822,000	10,159,000
Substandard [Member] | Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Substandard [Member] | Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	3,843,000	2,042,000
Substandard [Member] | Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	1,668,000	2,324,000
Substandard [Member] | State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	342,000	453,000
Doubtful [Member]
Financing Receivable by credit exposure [Abstract]
Total	124,000	103,000
Doubtful [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	38,000	39,000
Doubtful [Member] | Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Doubtful [Member] | Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Doubtful [Member] | Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	86,000	64,000
Doubtful [Member] | Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Doubtful [Member] | State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Loss [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Loss [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Loss [Member] | Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Loss [Member] | Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Loss [Member] | Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Loss [Member] | Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Loss [Member] | State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Internally Assigned Grade [Member]
Financing Receivable by credit exposure [Abstract]
Total	1,127,170,000	888,534,000
Performing [Member]
Financing Receivable by credit exposure [Abstract]
Total	237,191,000	226,040,000
Performing [Member] | Real Estate Loans [Member] | Mortgages [Member]
Financing Receivable by credit exposure [Abstract]
Total	149,171,000	156,151,000
Performing [Member] | Real Estate Loans [Member] | Home Equity [Member]
Financing Receivable by credit exposure [Abstract]
Total	57,407,000	59,950,000
Performing [Member] | Consumer [Member]
Financing Receivable by credit exposure [Abstract]
Total	30,613,000	9,939,000
Nonperforming [Member]
Financing Receivable by credit exposure [Abstract]
Total	1,498,000	972,000
Nonperforming [Member] | Real Estate Loans [Member] | Mortgages [Member]
Financing Receivable by credit exposure [Abstract]
Total	1,466,000	904,000
Nonperforming [Member] | Real Estate Loans [Member] | Home Equity [Member]
Financing Receivable by credit exposure [Abstract]
Total	20,000	60,000
Nonperforming [Member] | Consumer [Member]
Financing Receivable by credit exposure [Abstract]
Total	12,000	8,000
PCI [Member]
Financing Receivable by credit exposure [Abstract]
Total	20,000	23,000
PCI [Member] | Real Estate Loans [Member] | Mortgages [Member]
Financing Receivable by credit exposure [Abstract]
Total	20,000	23,000
PCI [Member] | Real Estate Loans [Member] | Home Equity [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
PCI [Member] | Consumer [Member]
Financing Receivable by credit exposure [Abstract]
Total	$ 0	$ 0

XML

Loans, Past Due (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
Recorded investment of past due [Abstract]
Total past due	$ 12,100	$ 9,730
Current	1,348,425	1,104,557
PCI	5,354	1,282
Total loan receivables	1,365,879	1,115,569
90 Days or greater and accruing	1,194	487
Financing receivables on nonaccrual status [Abstract]
Total past due and non-accrual	7,459	6,532
Current and non-accrual	4,252	5,004
PCI Loans considered non accrual	0
Financing receivable nonaccrual status	11,711	11,536
Financing receivables on accrual status [Abstract]
Total past due and still accruing	4,641	3,198
Current and still accruing	1,344,173	1,099,553
PCI Loans still accruing	5,354	1,282
Total financing receivables and still accruing	$ 1,354,168	1,104,033
Minimum [Member]
Financing receivables on nonaccrual status [Abstract]
Period of past due after which loans considered as non accrual	90 days
30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	$ 2,923	2,142
Financing receivables on nonaccrual status [Abstract]
Total past due and non-accrual	53	90
Financing receivables on accrual status [Abstract]
Total past due and still accruing	2,870	2,052
60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	577	754
Financing receivables on nonaccrual status [Abstract]
Total past due and non-accrual	0	95
Financing receivables on accrual status [Abstract]
Total past due and still accruing	577	659
90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	8,600	6,834
Financing receivables on nonaccrual status [Abstract]
Total past due and non-accrual	7,406	6,347
Financing receivables on accrual status [Abstract]
Total past due and still accruing	1,194	487
Real Estate Loans [Member] | Mortgages [Member]
Recorded investment of past due [Abstract]
Total past due	1,755	957
Current	148,882	156,098
PCI	20	23
Total loan receivables	150,657	157,078
90 Days or greater and accruing	622	1
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	844	903
Real Estate Loans [Member] | Mortgages [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	736	581
Real Estate Loans [Member] | Mortgages [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	208	57
Real Estate Loans [Member] | Mortgages [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	811	319
Real Estate Loans [Member] | Home Equity [Member]
Recorded investment of past due [Abstract]
Total past due	161	401
Current	57,266	59,609
PCI	0	0
Total loan receivables	57,427	60,010
90 Days or greater and accruing	0	1
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	20	59
Real Estate Loans [Member] | Home Equity [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	100	334
Real Estate Loans [Member] | Home Equity [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	43	11
Real Estate Loans [Member] | Home Equity [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	18	56
Real Estate Loans [Member] | Commercial [Member]
Recorded investment of past due [Abstract]
Total past due	6,534	5,043
Current	525,616	335,770
PCI	3,306	1,210
Total loan receivables	535,456	342,023
90 Days or greater and accruing	413	0
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	5,141	5,080
Real Estate Loans [Member] | Commercial [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	1,651	750
Real Estate Loans [Member] | Commercial [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	78	573
Real Estate Loans [Member] | Commercial [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	4,805	3,720
Real Estate Loans [Member] | Agricultural [Member]
Recorded investment of past due [Abstract]
Total past due	1,658	903
Current	307,322	310,561
PCI	1,722	0
Total loan receivables	310,702	311,464
90 Days or greater and accruing	147	299
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	3,161	2,578
Real Estate Loans [Member] | Agricultural [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	116	118
Real Estate Loans [Member] | Agricultural [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	215	0
Real Estate Loans [Member] | Agricultural [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	1,327	785
Real Estate Loans [Member] | Construction [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
Current	28,656	15,519
PCI	0	0
Total loan receivables	28,656	15,519
90 Days or greater and accruing	0	0
Real Estate Loans [Member] | Construction [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
Real Estate Loans [Member] | Construction [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
Real Estate Loans [Member] | Construction [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
Consumer [Member]
Recorded investment of past due [Abstract]
Total past due	187	131
Current	30,438	9,816
PCI	0	0
Total loan receivables	30,625	9,947
90 Days or greater and accruing	12	2
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	0	6
Consumer [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	142	113
Consumer [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	33	10
Consumer [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	12	8
Other Commercial Loans [Member]
Recorded investment of past due [Abstract]
Total past due	1,660	2,234
Current	128,071	67,687
PCI	0	49
Total loan receivables	129,731	69,970
90 Days or greater and accruing	0	184
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	1,551	1,837
Other Commercial Loans [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	169	217
Other Commercial Loans [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	0	71
Other Commercial Loans [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	1,491	1,946
Other Agricultural Loans [Member]
Recorded investment of past due [Abstract]
Total past due	145	61
Current	40,339	55,051
PCI	306	0
Total loan receivables	40,790	55,112
90 Days or greater and accruing	0	0
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	994	1,073
Other Agricultural Loans [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	9	29
Other Agricultural Loans [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	0	32
Other Agricultural Loans [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	136	0
State and Political Subdivision Loans [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
Current	81,835	94,446
PCI	0	0
Total loan receivables	81,835	94,446
90 Days or greater and accruing	0	0
State and Political Subdivision Loans [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
State and Political Subdivision Loans [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
State and Political Subdivision Loans [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	$ 0	$ 0

XML

Loans, Loan Modifications Related to COVID-19 (Details) - COVID-19 [Member] $ in Thousands	9 Months Ended
	Sep. 30, 2020 USD ($) Loan
Loan Modifications Related to COVID-19 [Abstract]
Number of loans | Loan	534
Balance as of Modification date	$ 205,123
Number of loans | Loan	12
Balance	$ 20,155
Principal and Interest Deferral	13,114
Principal Deferral	$ 7,041
Balance	1.48%
Real Estate Loans [Member] | Mortgages [Member]
Loan Modifications Related to COVID-19 [Abstract]
Number of loans | Loan	49
Balance as of Modification date	$ 9,996
Number of loans | Loan	1
Balance	$ 75
Principal and Interest Deferral	75
Principal Deferral	$ 0
Balance	0.05%
Real Estate Loans [Member] | Home Equity [Member]
Loan Modifications Related to COVID-19 [Abstract]
Number of loans | Loan	29
Balance as of Modification date	$ 1,389
Number of loans | Loan	0
Balance	$ 0
Principal and Interest Deferral	0
Principal Deferral	$ 0
Balance	0.00%
Real Estate Loans [Member] | Commercial [Member]
Loan Modifications Related to COVID-19 [Abstract]
Number of loans | Loan	259
Balance as of Modification date	$ 144,647
Number of loans | Loan	9
Balance	$ 17,712
Principal and Interest Deferral	13,039
Principal Deferral	$ 4,673
Balance	3.31%
Real Estate Loans [Member] | Agricultural [Member]
Loan Modifications Related to COVID-19 [Abstract]
Number of loans | Loan	50
Balance as of Modification date	$ 20,421
Number of loans | Loan	2
Balance	$ 2,368
Principal and Interest Deferral	0
Principal Deferral	$ 2,368
Balance	0.76%
Real Estate Loans [Member] | Construction [Member]
Loan Modifications Related to COVID-19 [Abstract]
Number of loans | Loan	3
Balance as of Modification date	$ 1,178
Number of loans | Loan	0
Balance	$ 0
Principal and Interest Deferral	0
Principal Deferral	$ 0
Balance	0.00%
Consumer [Member]
Loan Modifications Related to COVID-19 [Abstract]
Number of loans | Loan	10
Balance as of Modification date	$ 68
Number of loans | Loan	0
Balance	$ 0
Principal and Interest Deferral	0
Principal Deferral	$ 0
Balance	0.00%
Other Commercial Loans [Member]
Loan Modifications Related to COVID-19 [Abstract]
Number of loans | Loan	88
Balance as of Modification date	$ 24,077
Number of loans | Loan	0
Balance	$ 0
Principal and Interest Deferral	0
Principal Deferral	$ 0
Balance	0.00%
Other Agricultural Loans [Member]
Loan Modifications Related to COVID-19 [Abstract]
Number of loans | Loan	46
Balance as of Modification date	$ 3,347
Number of loans | Loan	0
Balance	$ 0
Principal and Interest Deferral	0
Principal Deferral	$ 0
Balance	0.00%

XML

Loans, Trouble Debt Restructuring (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2020 USD ($) Contract	Sep. 30, 2019 USD ($) Contract	Sep. 30, 2020 USD ($) Contract	Sep. 30, 2019 USD ($) Contract	Dec. 31, 2019 USD ($)
Loans [Abstract]
Reserves of allowance for loan losses	$ 293,000		$ 293,000		$ 345,000
Recidivism receivables [Abstract]
Number of contract, subsequently defaults | Contract	1	0	1	6
Total recidivism, Recorded investment	$ 110,000	$ 0	$ 110,000	$ 2,242,000
Interest Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	0	0	0	0
Pre-modification outstanding recorded investment	$ 0	$ 0	$ 0	$ 0
Post-modification outstanding recorded investment	$ 0	$ 0	$ 0	$ 0
Term Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	2	2	5	8
Pre-modification outstanding recorded investment	$ 279,000	$ 121,000	$ 835,000	$ 965,000
Post-modification outstanding recorded investment	$ 279,000	$ 121,000	$ 835,000	$ 965,000
Real Estate Loans [Member] | Mortgages [Member] | Interest Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract				0
Pre-modification outstanding recorded investment				$ 0
Post-modification outstanding recorded investment				$ 0
Real Estate Loans [Member] | Mortgages [Member] | Term Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract				1
Pre-modification outstanding recorded investment				$ 4,000
Post-modification outstanding recorded investment				$ 4,000
Real Estate Loans [Member] | Home Equity [Member] | Interest Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract				0
Pre-modification outstanding recorded investment				$ 0
Post-modification outstanding recorded investment				$ 0
Real Estate Loans [Member] | Home Equity [Member] | Term Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract				1
Pre-modification outstanding recorded investment				$ 40,000
Post-modification outstanding recorded investment				$ 40,000
Real Estate Loans [Member] | Commercial [Member]
Recidivism receivables [Abstract]
Number of contract, subsequently defaults | Contract	1	0	1	1
Total recidivism, Recorded investment	$ 110,000	$ 0	$ 110,000	$ 542,000
Real Estate Loans [Member] | Commercial [Member] | Interest Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	0	0	0	0
Pre-modification outstanding recorded investment	$ 0	$ 0	$ 0	$ 0
Post-modification outstanding recorded investment	$ 0	$ 0	$ 0	$ 0
Real Estate Loans [Member] | Commercial [Member] | Term Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	1	1	3	5
Pre-modification outstanding recorded investment	$ 276,000	$ 118,000	$ 682,000	$ 918,000
Post-modification outstanding recorded investment	$ 276,000	$ 118,000	$ 682,000	$ 918,000
Real Estate Loans [Member] | Agricultural [Member]
Recidivism receivables [Abstract]
Number of contract, subsequently defaults | Contract	0	0	0	1
Total recidivism, Recorded investment	$ 0	$ 0	$ 0	$ 1,439,000
Real Estate Loans [Member] | Agricultural [Member] | Interest Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract			0
Pre-modification outstanding recorded investment			$ 0
Post-modification outstanding recorded investment			$ 0
Real Estate Loans [Member] | Agricultural [Member] | Term Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract			1
Pre-modification outstanding recorded investment			$ 150,000
Post-modification outstanding recorded investment			$ 150,000
Consumer [Member] | Interest Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	0	0	0	0
Pre-modification outstanding recorded investment	$ 0	$ 0	$ 0	$ 0
Post-modification outstanding recorded investment	$ 0	$ 0	$ 0	$ 0
Consumer [Member] | Term Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	1	1	1	1
Pre-modification outstanding recorded investment	$ 3,000	$ 3,000	$ 3,000	$ 3,000
Post-modification outstanding recorded investment	$ 3,000	$ 3,000	$ 3,000	$ 3,000
Other Agricultural Loans [Member]
Recidivism receivables [Abstract]
Number of contract, subsequently defaults | Contract	0	0	0	4
Total recidivism, Recorded investment	$ 0	$ 0	$ 0	$ 261,000

XML

Loans, Allowance for Loan Losses (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Jun. 30, 2020	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment	$ 791		$ 735
Collectively evaluated for impairment	14,378		13,110
Total	15,169	$ 14,827	13,845	$ 13,679	$ 13,304	$ 12,884
Real Estate Loans [Member] | Residential [Member]
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment	29		32
Collectively evaluated for impairment	1,190		1,082
Total	1,219	1,206	1,114	1,091	1,066	1,105
Real Estate Loans [Member] | Commercial [Member]
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment	341		251
Collectively evaluated for impairment	4,965		4,298
Total	5,306	4,944	4,549	4,641	4,400	4,115
Real Estate Loans [Member] | Agricultural [Member]
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment	79		151
Collectively evaluated for impairment	4,727		4,871
Total	4,806	5,061	5,022	4,712	4,532	4,264
Real Estate Loans [Member] | Construction [Member]
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	85		43
Total	85	81	43	19	36	58
Consumer [Member]
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment	12		0
Collectively evaluated for impairment	340		112
Total	352	362	112	119	118	120
Other Commercial Loans [Member]
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment	181		147
Collectively evaluated for impairment	1,049		1,108
Total	1,230	1,201	1,255	1,349	1,328	1,354
Other Agricultural Loans [Member]
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment	149		154
Collectively evaluated for impairment	586		807
Total	735	821	961	869	741	752
State and Political Subdivision Loans [Member]
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	514		536
Total	514	547	536	536	539	762
Unallocated [Member]
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	922		253
Total	$ 922	$ 604	$ 253	$ 343	$ 544	$ 354

XML

Loans, Allowance for Loan Losses by Portfolio Segment (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	$ 14,827	$ 13,304	$ 13,845	$ 12,884
Charge-offs	(237)	(34)	(256)	(387)
Recoveries	29	9	80	32
Provision (Credit)	550	400	1,500	1,150
Balance at end of period	15,169	13,679	15,169	13,679
Real Estate Loans [Member] | Residential [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	1,206	1,066	1,114	1,105
Charge-offs		(24)	0	(24)
Recoveries	0	0	0	0
Provision (Credit)	13	49	105	10
Balance at end of period	1,219	1,091	1,219	1,091
Real Estate Loans [Member] | Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	4,944	4,400	4,549	4,115
Charge-offs	(220)	0	(221)	(293)
Recoveries	3	0	37	0
Provision (Credit)	579	241	941	819
Balance at end of period	5,306	4,641	5,306	4,641
Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	5,061	4,532	5,022	4,264
Charge-offs	(4)	0	(4)	0
Recoveries	19	0	19	0
Provision (Credit)	(270)	180	(231)	448
Balance at end of period	4,806	4,712	4,806	4,712
Real Estate Loans [Member] | Construction [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	81	36	43	58
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision (Credit)	4	(17)	42	(39)
Balance at end of period	85	19	85	19
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	362	118	112	120
Charge-offs	(12)	(10)	(30)	(32)
Recoveries	3	6	15	24
Provision (Credit)	(1)	5	255	7
Balance at end of period	352	119	352	119
Other Commercial Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	1,201	1,328	1,255	1,354
Charge-offs	(1)	0	(1)	(38)
Recoveries	4	3	9	8
Provision (Credit)	26	18	(33)	25
Balance at end of period	1,230	1,349	1,230	1,349
Other Agricultural Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	821	741	961	752
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision (Credit)	(86)	128	(226)	117
Balance at end of period	735	869	735	869
State and Political Subdivision Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	547	539	536	762
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision (Credit)	(33)	(3)	(22)	(226)
Balance at end of period	514	536	514	536
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	604	544	253	354
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision (Credit)	318	(201)	669	(11)
Balance at end of period	$ 922	$ 343	$ 922	$ 343

XML

Loans, Foreclosed Assets Held for Sale (Details) - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Foreclosed assets held for sale [Abstract]
Foreclosed assets held for sale	$ 2,726,000	$ 3,404,000
Consumer Residential Mortgages [Member]
Foreclosed assets held for sale [Abstract]
Foreclosed assets held for sale	199,000
Formal foreclosure proceedings on potential foreclosure assets	$ 723,000

XML

Goodwill and Other Intangible Assets (Details) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Amortized intangible assets [Abstract]
Gross carrying value	[1]	$ 4,126		$ 4,126		$ 3,629
Accumulated amortization	[1]	(2,588)		(2,588)		(2,283)
Net carrying value	[1]	1,538		1,538		1,346
Unamortized intangible assets [Abstract]
Goodwill	[1]	31,376		31,376		23,296
Actual and Estimated Future Amortization Expense [Abstract]
Amortization expense		103	$ 110	306	$ 336
Estimated Amortization Expense [Abstract]
Remaining 2020		115		115
2021		405		405
2022		324		324
2023		251		251
2024		183		183
Thereafter		260		260
Mortgage Servicing Rights (MSRs) [Member]
Amortized intangible assets [Abstract]
Gross carrying value	[1]	2,058		2,058		1,718
Accumulated amortization	[1]	(1,220)		(1,220)		(1,077)
Net carrying value	[1]	838		838		641
Actual and Estimated Future Amortization Expense [Abstract]
Amortization expense		46	44	144	138
Estimated Amortization Expense [Abstract]
Remaining 2020		60		60
2021		213		213
2022		168		168
2023		130		130
2024		98		98
Thereafter		169		169
Core Deposit Intangibles [Member]
Amortized intangible assets [Abstract]
Gross carrying value	[1]	1,943		1,943		1,786
Accumulated amortization	[1]	(1,243)		(1,243)		(1,081)
Net carrying value	[1]	700		700		705
Actual and Estimated Future Amortization Expense [Abstract]
Amortization expense		57	58	162	174
Estimated Amortization Expense [Abstract]
Remaining 2020		55		55
2021		192		192
2022		156		156
2023		121		121
2024		85		85
Thereafter		91		91
Covenant not to Compete [Member]
Amortized intangible assets [Abstract]
Gross carrying value	[1]	125		125		125
Accumulated amortization	[1]	(125)		(125)		(125)
Net carrying value	[1]	0		0		$ 0
Actual and Estimated Future Amortization Expense [Abstract]
Amortization expense		0	$ 8	0	$ 24
Estimated Amortization Expense [Abstract]
Remaining 2020		0		0
2021		0		0
2022		0		0
2023		0		0
2024		0		0
Thereafter		$ 0		$ 0

[1] Excludes fully amortized intangible assets

XML

Employee Benefit Plans, Noncontributory Defined Benefit Pension Plan (Details) - Pension Plan [Member] - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Components of net periodic benefit cost [Abstract]
Service cost	$ 82	$ 78	$ 247	$ 256
Interest cost	83	123	249	401
Expected return on plan assets	(215)	(187)	(646)	(595)
Partial Settlement	0	0	307	0
Net amortization and deferral	59	60	175	181
Net periodic benefit cost	9	$ 74	332	$ 243
Expected employer contribution to pension plan	$ 250,000		$ 250,000

XML

Employee Benefit Plans, Restricted Stock Plan (Details) - Restricted Stock [Member] - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Deferred Compensation Arrangements [Abstract]
Number of shares authorized (in shares)	150,000		150,000
Number of shares available for grant (in shares)	124,479		124,479
Unvested Shares [Roll Forward]
Outstanding, beginning of period (in shares)	10,786		10,877
Granted (in shares)	85		4,732
Forfeited (in shares)	0		0
Vested (in shares)	0		(4,738)
Outstanding, end of period (in shares)	10,871		10,871
Weighted Average Market Price [Roll Forward]
Outstanding, beginning of period (in dollars per share)	$ 56.60		$ 60.11
Granted (in dollars per share)	58.37		51.29
Forfeited (in dollars per share)	0		0
Vested (in dollars per share)	0		(59.32)
Outstanding, end of period (in dollars per share)	$ 56.61		$ 56.61
Additional General Disclosures [Abstract]
Share-based compensation expense	$ 83,000	$ 78,000	$ 248,000	$ 219,000
Compensation cost related to nonvested awards that has not yet been recognized	$ 615,000		$ 615,000
Period over which compensation cost is expected to be recognized			3 years

XML

Accumulated Comprehensive Income (Loss), By Component (Details) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance		$ 183,095	$ 148,021	$ 154,774	$ 139,229
Other comprehensive income (loss) before reclassifications (net of tax)		58	7	3,352	3,495
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)		(100)	41	142	137
Other comprehensive income (loss), net of tax		(42)	48	3,494	3,632
Balance		189,051	151,678	189,051	151,678
Accumulated Other Comprehensive Loss [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance		2,907	(337)	(629)	(3,921)
Other comprehensive income (loss), net of tax		(42)	48	3,494	3,632
Balance		2,865	(289)	2,865	(289)
Unrealized Gain (Loss) on Available for Sale Securities [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance	[1]	5,938	2,515	2,290	(973)
Other comprehensive income (loss) before reclassifications (net of tax)	[1]	(35)	7	3,705	3,495
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)	[1]	(147)	(6)	(239)	(6)
Other comprehensive income (loss), net of tax	[1]	(182)	1	3,466	3,489
Balance	[1]	5,756	2,516	5,756	2,516
Defined Benefit Pension Items [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance	[1]	(2,585)	(2,852)	(2,919)	(2,948)
Other comprehensive income (loss) before reclassifications (net of tax)	[1]	0	0	0	0
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)	[1]	47	47	381	143
Other comprehensive income (loss), net of tax	[1]	47	47	381	143
Balance	[1]	(2,538)	(2,805)	(2,538)	(2,805)
Unrealized Loss on Interest Rate Swap [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance	[1]	(446)	0	0	0
Other comprehensive income (loss) before reclassifications (net of tax)	[1]	93	0	(353)	0
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)	[1]	0	0	0	0
Other comprehensive income (loss), net of tax	[1]	93	0	(353)	0
Balance	[1]	$ (353)	$ 0	$ (353)	$ 0

[1] Amounts in parentheses indicate debits on the Consolidated Balance Sheet.

XML

Accumulated Comprehensive Income (Loss), Reclassification (Details) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
AOCI Attributable to Parent [Abstract]
Available for sale security gains, net				$ 26	$ 78
Provision for income taxes		$ (1,759)	$ (1,066)	(3,702)	(2,817)
NET INCOME		8,007	5,196	17,876	14,447
Amount Reclassified from Accumulated Comprehensive Income (Loss) [Member]
AOCI Attributable to Parent [Abstract]
NET INCOME	[1]	100	(41)	(142)	(137)
Unrealized Gains and Losses on Available for Sale Securities [Member] | Amount Reclassified from Accumulated Comprehensive Income (Loss) [Member]
AOCI Attributable to Parent [Abstract]
Available for sale security gains, net	[1]	185	8	302	8
Provision for income taxes	[1]	(38)	(2)	(63)	(2)
NET INCOME	[1]	147	6	239	6
Defined Benefit Pension Items [Member] | Amount Reclassified from Accumulated Comprehensive Income (Loss) [Member]
AOCI Attributable to Parent [Abstract]
Other expenses	[1]	(59)	(60)	(482)	(181)
Provision for income taxes	[1]	12	13	101	38
NET INCOME	[1]	$ (47)	$ (47)	$ (381)	$ (143)

[1] Amounts in parentheses indicate expenses and other amounts indicate income on the Consolidated Statement of Income

XML

Fair Value Measurements, Measured On A Recurring And Nonrecurring Basis (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
Fair value assets and liabilities measured on non-recurring basis [Abstract]
Impaired loans, estimated selling cost	$ 449,000	$ 424,000
Recurring [Member]
Assets [Abstract]
Equity securities	1,696,000	701,000
Available for sale securities [Abstract]
U.S. Agency Securities	80,698,000	84,863,000
U.S. Treasury securities	28,167,000	27,661,000
Obligations of state and political subdivisions	91,848,000	61,455,000
Corporate obligations	6,507,000	3,328,000
Mortgage-backed securities in government sponsored entities	80,618,000	63,399,000
Liabilities [Abstract]
Interest rate swaps	448,000
Recurring [Member] | Level I [Member]
Assets [Abstract]
Equity securities	1,696,000	701,000
Available for sale securities [Abstract]
U.S. Agency Securities	0	0
U.S. Treasury securities	28,167,000	27,661,000
Obligations of state and political subdivisions	0	0
Corporate obligations	0	0
Mortgage-backed securities in government sponsored entities	0	0
Liabilities [Abstract]
Interest rate swaps	0
Recurring [Member] | Level II [Member]
Assets [Abstract]
Equity securities	0	0
Available for sale securities [Abstract]
U.S. Agency Securities	80,698,000	84,863,000
U.S. Treasury securities	0	0
Obligations of state and political subdivisions	91,848,000	61,455,000
Corporate obligations	6,507,000	3,328,000
Mortgage-backed securities in government sponsored entities	80,618,000	63,399,000
Liabilities [Abstract]
Interest rate swaps	448,000
Recurring [Member] | Level III [Member]
Assets [Abstract]
Equity securities	0	0
Available for sale securities [Abstract]
U.S. Agency Securities	0	0
U.S. Treasury securities	0	0
Obligations of state and political subdivisions	0	0
Corporate obligations	0	0
Mortgage-backed securities in government sponsored entities	0	0
Liabilities [Abstract]
Interest rate swaps	0
Nonrecurring [Member]
Fair value assets and liabilities measured on non-recurring basis [Abstract]
Impaired Loans	4,072,000	3,860,000
Other real estate owned	2,692,000	3,299,000
Nonrecurring [Member] | Level I [Member]
Fair value assets and liabilities measured on non-recurring basis [Abstract]
Impaired Loans	0	0
Other real estate owned	0	0
Nonrecurring [Member] | Level II [Member]
Fair value assets and liabilities measured on non-recurring basis [Abstract]
Impaired Loans	0	0
Other real estate owned	0	0
Nonrecurring [Member] | Level III [Member]
Fair value assets and liabilities measured on non-recurring basis [Abstract]
Impaired Loans	4,072,000	3,860,000
Other real estate owned	$ 2,692,000	$ 3,299,000

XML

Fair Value Measurements, Quantitative Information (Details) - Appraised Collateral Values [Member] $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2020 USD ($)	Dec. 31, 2019 USD ($)
Impaired Loans [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Impaired Loans	$ 4,072	$ 3,860
Impaired Loans [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Holding period	0 months	6 months
Impaired Loans [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Holding period	12 months	12 months
Impaired Loans [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Holding period	11 months 26 days	11 months 23 days
Impaired Loans [Member] | Discount for Time Since Appraisal [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Impaired loans, Measurement input	0	0
Impaired Loans [Member] | Discount for Time Since Appraisal [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Impaired loans, Measurement input	1	1
Impaired Loans [Member] | Discount for Time Since Appraisal [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Impaired loans, Measurement input	0.1770	0.1922
Impaired Loans [Member] | Selling Costs [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Impaired loans, Measurement input	0.05	0.05
Impaired Loans [Member] | Selling Costs [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Impaired loans, Measurement input	0.10	0.10
Impaired Loans [Member] | Selling Costs [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Impaired loans, Measurement input	0.0925	0.0926
Other Real Estate Owned [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Impaired Loans	$ 2,692	$ 3,299
Other Real Estate Owned [Member] | Discount for Time Since Appraisal [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Other real estate owned, Measurement input	0.10	0.05
Other Real Estate Owned [Member] | Discount for Time Since Appraisal [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Other real estate owned, Measurement input	0.30	0.43
Other Real Estate Owned [Member] | Discount for Time Since Appraisal [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Other real estate owned, Measurement input	0.1879	0.1637

XML

Fair Value Measurements, By Balance Sheet Grouping (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Financial assets [Abstract]
Interest bearing time deposits with other banks	$ 13,758	$ 14,256
Level I [Member] | Recurring [Member]
Financial assets [Abstract]
Interest bearing time deposits with other banks	0	0
Loans held for sale	0	0
Net loans	0	0
Financial liabilities [Abstract]
Deposits	1,168,405	938,387
Borrowed funds	0	0
Level II [Member] | Recurring [Member]
Financial assets [Abstract]
Interest bearing time deposits with other banks	0	0
Loans held for sale	0	0
Net loans	0	0
Financial liabilities [Abstract]
Deposits	0	0
Borrowed funds	0	0
Level III [Member] | Recurring [Member]
Financial assets [Abstract]
Interest bearing time deposits with other banks	14,406	14,635
Loans held for sale	19,320	815
Net loans	1,369,709	1,091,006
Financial liabilities [Abstract]
Deposits	390,111	272,813
Borrowed funds	99,616	84,581
Carrying Amount [Member] | Recurring [Member]
Financial assets [Abstract]
Interest bearing time deposits with other banks	13,758	14,256
Loans held for sale	19,320	815
Net loans	1,350,710	1,101,724
Financial liabilities [Abstract]
Deposits	1,552,753	1,211,118
Borrowed funds	99,602	85,117
Fair Value [Member] | Recurring [Member]
Financial assets [Abstract]
Interest bearing time deposits with other banks	14,406	14,635
Loans held for sale	19,320	815
Net loans	1,369,709	1,091,006
Financial liabilities [Abstract]
Deposits	1,558,516	1,211,200
Borrowed funds	$ 99,616	$ 84,581

XML

Acquisition of MidCoast Community Bancorp, Inc (Details) $ / shares in Units, shares in Thousands		3 Months Ended
	Apr. 17, 2020 USD ($) $ / shares shares	Sep. 30, 2019 Branches $ / shares	Sep. 30, 2020 USD ($)	Dec. 31, 2019 USD ($)
Acquisition [Abstract]
Purchased credit-impaired loans			$ 5,354,000	$ 1,282,000
MidCoast Community Bancorp, Inc [Member]
Acquisition [Abstract]
Equity interest percentage		100.00%
Right to receive cash for each share of common stock (in dollars per share) | $ / shares		$ 6.50
Total purchase price	$ 26,843,000
Number of shares issued (in shares) | shares	373,356
Cash	$ 7,600,000
Share price (in dollars per share) | $ / shares	$ 51.50
Purchased credit-impaired loans	$ 4,869,000
MidCoast Community Bancorp, Inc [Member] | Wilmington [Member]
Acquisition [Abstract]
Number of branches | Branches		2
MidCoast Community Bancorp, Inc [Member] | Dover [Member]
Acquisition [Abstract]
Number of branches | Branches		1

XML

Acquisition of MidCoast Community Bancorp, Inc, Summarizes The Purchase of Midcoast (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands		Apr. 17, 2020	Sep. 30, 2020	Dec. 31, 2019
Adjustments to reflect liabilities acquired at fair value [Abstract]
Goodwill resulting from merger	[1]		$ 31,376	$ 23,296
MidCoast Community Bancorp, Inc [Member]
Purchase Price Consideration in Common Stock [Abstract]
Citizens Financial Services, Inc. shares issued (in shares)		373,356
Value assigned to Citizens Financial Services, Inc. common share (in dollars per share)		$ 51.50
Purchase price assigned to MidCoast common shares exchanged for Citizens Financial Services, Inc.		$ 19,227
Purchase Price Consideration - Cash for Common Stock [Abstract]
Purchase price assigned to The First National Bank of Fredericksburg common shares exchanged for cash		7,616
Total Purchase Price		26,843
Net Assets Acquired [Abstract]
MidCoast Community Bancorp, Inc shareholders' equity		24,330
Adjustments to reflect assets acquired at fair value [Abstract]
Investments
Loans [Abstract]
Interest rate		1,424
General credit		(4,375)
Specific credit - non-amortizing		(2,135)
Specific credit - amortizing		(966)
Core deposit intangible		157
Owned premises		(426)
Other assets		65
Deferred tax assets		2,217
Adjustments to reflect liabilities acquired at fair value [Abstract]
Time deposits		(1,018)
Borrowings		(497)
Other liabilities		(13)
Net assets acquired		18,763
Goodwill resulting from merger		$ 8,080

[1] Excludes fully amortized intangible assets

XML

Acquisition of MidCoast Community Bancorp, Inc, Asset Acquired and Liability Assumed (Details) - USD ($)		Apr. 17, 2020	Sep. 30, 2020	Dec. 31, 2019
Net assets acquired [Abstract]
Goodwill resulting from the MidCoast merger	[1]		$ 31,376,000	$ 23,296,000
Accumulated amortization	[1]		2,588,000	$ 2,283,000
MidCoast Community Bancorp, Inc [Member]
Asset Acquired and Liability Assumed [Abstract]
Total purchase price		$ 26,843,000
Net assets acquired [Abstract]
Cash and cash equivalents		8,637,000
Loans		223,235,000
Premises and equipment, net		1,787,000
Accrued interest receivable		586,000
Bank owned life insurance		3,766,000
Intangibles		157,000
Deferred tax asset		3,402,000
Other assets		2,878,000
Time deposits		(123,841,000)
Deposits other than time deposits		(84,985,000)
Accrued interest payable		(164,000)
Borrowings		(15,497,000)
Other liabilities		(1,198,000)
Net assets acquired		18,763,000
Goodwill resulting from the MidCoast merger		8,080,000
Goodwill and other intangibles		$ 8,237,000
Gross carrying amount of core deposit			157,000
Accumulated amortization			$ 12,000

[1] Excludes fully amortized intangible assets

XML

Acquisition of MidCoast Community Bancorp, Inc, Estimated Future Amortization Expense (Details) - USD ($)		3 Months Ended		9 Months Ended
		Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Estimated Future Amortization Expense [Abstract]
Amortization expense		$ 103,000	$ 110,000	$ 306,000	$ 336,000
Remaining 2020		115,000		115,000
2021		405,000		405,000
2022		324,000		324,000
2023		251,000		251,000
2024		183,000		183,000
Thereafter		260,000		260,000
Net carrying value	[1]	1,538,000		1,538,000		$ 1,346,000
Merger and acquisition expenses		0	275,000	2,179,000	275,000
MidCoast Community Bancorp, Inc [Member]
Estimated Future Amortization Expense [Abstract]
Merger and acquisition expenses				2,179,000
Core Deposit Intangibles [Member]
Estimated Future Amortization Expense [Abstract]
Amortization expense		57,000	$ 58,000	162,000	$ 174,000
Remaining 2020		55,000		55,000
2021		192,000		192,000
2022		156,000		156,000
2023		121,000		121,000
2024		85,000		85,000
Thereafter		91,000		91,000
Net carrying value	[1]	700,000		700,000		$ 705,000
Core Deposit Intangibles [Member] | MidCoast Community Bancorp, Inc [Member]
Estimated Future Amortization Expense [Abstract]
Amortization expense		7,000		12,000
Remaining 2020		7,000		7,000
2021		27,000		27,000
2022		24,000		24,000
2023		21,000		21,000
2024		18,000		18,000
Thereafter		48,000		48,000
Net carrying value		$ 145,000		$ 145,000

[1] Excludes fully amortized intangible assets

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Acquisition of MidCoast Community Bancorp, Inc, Proforma Information (Details) - MidCoast Community Bancorp, Inc [Member] - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		5 Months Ended	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2020	Sep. 30, 2019
Actual from Acquisition Date [Abstract]
Net interest income			$ 5,387
Non-interest income			107
Net income			$ 3,035
Pro Formas [Abstract]
Net interest income	$ 16,052	$ 15,404		$ 47,642	$ 44,918
Non-interest income	3,538	2,239		7,779	6,416
Net income	$ 7,678	$ 5,849		$ 16,306	$ 16,649
Pro forma earnings per share [Abstract]
Basic (in dollars per share)	$ 1.96	$ 1.49		$ 4.16	$ 4.23
Diluted (in dollars per share)	$ 1.96	$ 1.49		$ 4.16	$ 4.23